Warren Buffett is one of the best investors in history, and is widely regarded as the “Oracle of Omaha.”
Buffett is a value investor at heart, but he also shares a lot of other insights during shareholder meetings and in his annual letter to shareholders. As such, it is pretty easy to understand Warren Buffett’s investing philosophy.
1. Cash Is King Cash is a big deal to Warren Buffett, and he keeps a lot of it on hand at any given time. The reason? In Warren Buffett’s words, he keeps a lot of cash on hand “so that we can both withstand unprecedented losses and … quickly seize acquisition or investment opportunities.”
2. Be Fearful When Others Are Greedy One of Buffett’s most famous phrases is, “Be fearful when others are greedy, and greedy when others are fearful.” This great sentiment is very true of our stock market and investing system.
The bottom line is that you should avoid the stocks that everyone else is buying, as they probably are overvalued. Instead, look for the stocks that few people are paying attention to, check their fundamentals, and invest if it makes sense.
3. Dividends Are Your Friend
Buffett loves dividends, as do most value investors.Dividends are a great perk to buying a company, as it usually shows that the company’s finances are in good enough shape to support paying out its hard-earned money.
4. Always Buy Undervalued Stocks
Buffett is a big-time value investor, and always looks to buy undervalued stocks based on their intrinsic value.He calculates the intrinsic value by looking at the company’s fundamentals — at a minimum of over the last five years, sometimes longer. He looks a lot at return on equity, operating margins, and having little or no debt. He compares the company to its peer group, and likes to see if it is undervalued.
5. Buy and Hold
Finally, Buffett is a true buy-and-hold investor. He holds his positions for a long period of time, and constantly reiterates this to his followers.In fact, he has said that he likes to “buy and hold forever.” And it is true, since he has owned many of his positions for over 20 years, which is eons in the investing world.