Warren Buffett: strategist, forecaster or lucky guy

YEREVAN, May 24. /ARKA/. Warren Buffett's acknowledgement as one of the world's most successful investors is now undeniable. Obviously, this status is the outcome t of many years of hard work. In this article, we will tell how Buffett's personality was shaped and will also analyze his investment approaches.

Where did the outstanding entrepreneur begin? 

Warren Buffett was born on August 30, 1930 in Omaha, Nebraska. His father Howard achieved great success in trading. Consequently, Warren, who had seen the model of a businessman since childhood, perceived making deals on the market as a normal activity.

There are some legendary stories about Buffett's first investments. For example, the story of how he bought six cans of soda with pocket money at the age of six - each for 25 cents - and sold them to his family members for twice the price. Another story is about his first stock purchase at age 11 using the money borrowed from his father and selling it for a five-dollar profit.

Buffett has never shied away from work. At the age of 13, he delivered morning newspapers, paid taxes and, after earning enough money, bought 40 acres of land to rent to farmers.  By the early '50s, Warren had earned a bachelor's degree from Nebraska University and continued his studies at Columbia Business School. 

From 1950 to 1956 Buffett worked as a middle manager in his father's company and at the age of 22 opened his own investment courses. The first firm in which Warren invested was Geiko, which was engaged in car insurance. The choice was due to the fact that one of the directors of the firm was Benjamin Graham, a teacher from Columbia University. Based, among other things, on his seminars, Buffett built his approach to finance. 

In 1956, the fledgling entrepreneur opened Buffet Partnershop Itd. With a capital of 150 thousand dollars, he decided to save the funds; the bulk of the money was contributed by his relatives.

In 1962, Buffet bought a textile company that was collapsing due to the crisis, became its director and held half of the shares. Having added the company to Buffet Partnershop Itd., he changed the direction of the business. Instead of textile manufacturing, the company shifted to securities buying and increased revenues. The company was called Berkshire Hathaway. 

In the 70s and 80s, Buffett, taking advantage of a dramatic drop in prices, profitably bought shares of Washington Post, McDonalds, Walt Disney, General, American Express, and Gillette. By the end of the 20th century, Berkshire Hathaway had grown into a super holding. In 2008, Forbes recognized Buffett as the richest man on the planet.

What is the secret of Buffett's success?

The entrepreneur's success is due in no small part to his attitude to business, earnings and people.

 Buffett has never perceived money as an end in itself. In his opinion, you should think, first, about the business you plan to do, about the process and opportunities for self-development.

Warren Buffett considers it axiomatic for a businessperson not to spend the first proceeds, but to invest them in the development of the business. He recommends following a similar approach when it comes to personal finances.

When you have a surplus of money, but you don't have definite financial goals, start saving, the entrepreneur advises. Buffett is sure that everyone is capable of accumulating savings - 10-20 percent of their regular income and half of their super income.   To effectively manage your finances, whether you run your own business or not, you need to engage in financial planning, says the businessman.

Buffett is known as a frugal entrepreneur and person. He was not afraid of being misunderstood by other investors and bought unpopular and inexpensive stocks when he thought it was necessary. Buffett with his wealth does not aspire to a luxurious life, he does not have huge mansions and yachts.

The entrepreneur said that one should not focus on making money as such, but on making one's loved ones happier with it:  -What's the point of wealth if you only share it with yourself.  

-It is important to be able to say no. -Without it, you cannot effectively manage your main resource - time. -You need to acknowledge the right of people to have an opinion different from yours, but always stick to your own position.

-Your loved ones may not share your priorities and may even oppose them. However, this should not become an obstacle to the completion of the goal. Even slowly, but you need to continue moving in the chosen direction.

Warren Buffett advises to communicate as often as possible with people who motivate your development, with someone who is on a conditionally higher level, who inspires respect and motivates you.

He has a negative attitude towards debt in business, considering it the first sign that an investor will face poverty. In the case of borrowed money, expenses can exceed income and ruin the opportunity for growth. 

Buffett believes that any person, regardless of financial status, somehow comes to the conclusion that the most important thing is health. 

-Focus on positive emotions, recognize your own right 'to appropriate' a successful result, take note of what makes you happy and motivated.-It is not productive to dwell on failures. -It is important to calm down, accept the fact that you made a suboptimal step and understand the reasons. -It is this approach that minimizes risks and mistakes in the future.

You should strive for a big income only in order to use it to positively influence society and help others, the entrepreneur said. At the same time, Buffett himself donates significant sums to charity.

The "secrets" of investing 

Although Buffett has an image of a man with incredible intuition, in reality, his decisions are based on a clearly planned strategy. He invests in companies engaged in serious projects, regardless of their popularity in the market. Buffett's approach is to make regular trades over many years and receive a stable income.

The investor did not follow trends until he was convinced of their validity. This made it possible to reduce not only risks but also costs. For example, Buffett invested in Apple only a few years after the peak of its popularity, when the value of its shares dropped significantly. He is known as a rather conservative player, but not because of the fear of risks, but because of the desire to fully study the company's activities and analyze the dynamics of assets.

Buffett advises choosing issuers, whose goals and product inspire trust and respect, paying attention first and foremost to leading companies. The investor also considers the most reliable and profitable investment in the international market. 

Warren Buffett has never been afraid to take risks, striving to react quickly and make decisions, sometimes even declined by his partners.

‘Take this principle thoughtfully. Don't be afraid of risk and discomfort when learning new things, don't doubt your own abilities, but always remember: it's not so much the speed of your steps as the accuracy that matters,‘Buffett liked to say. When taking risks, he understood what he was doing and why. Buffett noted that the approach to investing, as well as to activities in other areas, is individual. 

At the same time, he calls for a realistic assessment of the situation, and when seeing the futility of an activity, to abandon it.  If you are sinking in a boat with a hole in it, it would be much more efficient to find a new boat than to spend time and energy on patching up the holes. 

The entrepreneur would buy companies that were recognized as reliable but were experiencing difficulties due to temporary changes. Then because of the reduced interest of other participants, the price of their shares would fall. 

When choosing assets, Buffett did not limit himself to the stock market or even prioritize it. The businessman chose those areas for deposits where others, in his opinion, showed shortsightedness. It can be said that Buffett's success is based on planned risk: he avoided other people's mistakes, understanding their nature. 

Buffett evaluated not the state of the economy as a whole, but the activities of specific firms and chose those that were able to bring profits, even if not the highest, even in a crisis. He advises investors, first of all, to understand market prices and the nature of their formation. 

Investors must be confident that the returns the assets will bring in the future will exceed their cost of buying the stocks or companies. 

One of the factors that led Buffett to success was his knowledge of investment psychology. He understood that irrational and erroneous moves are often based on behavioral aspects:

- Overconfidence. Investors tend to interpret things based on their emotional reactions. For example, a person may view a series of random events as a pattern or base their interpretation on the facts of the past, forgetting the differences in circumstances.

-  of hype reaction. In our perception, negative information is often captured more clearly than positive information. Because of this, investors only superficially analyze the activities of companies and decline profitable investments.

- Loss aversion and ambivalent attitude towards money: market participants react very painfully to failures and become too conservative. It is important for investors to override negative emotions with positive ones, so they are unreasonably happy about income that is only covering costs.

In Buffett's opinion, only a patient and calm investor who does not follow others and believes in his own strategy is able to act effectively.

If Buffett chooses a company, then it is characterized by :

- Honest and professional management,

- Reasonable price,

- Large and clearly visible prospects.

The entrepreneur identifies three main factors that should be studied when analyzing a company: economic indicators, inflation rates and future tax rates, and transparency in management behavior.

Buffett advises investors who are not ready to thoroughly understand the activities of companies to choose index funds for deposits. This is an understandable and quite profitable way.

The three main principles of Buffett the CEO

In solving specific tasks and business communication, one should be straightforward and frank. A manager should provide actual reporting and base presentations on results, not forecasts. The main qualities of a successful manager should be energy, honesty and intelligence.

Relationships in the team are not based on strict hierarchy and subordination, but on mutual respect and selection of suitable people. Managers are paid according to their performance, not their position.

And in conclusion, as a bonus, 7 rules of successful investing from Warren Buffett

- Invest in close and understandable areas.

- Make an investment plan. It should be written down. This allows you to visualize your goals and make visible adjustments.

- Be flexible: focus on the current state of the market and update your strategy if necessary, but do not deviate from your positions.

 -Analyze the company's activities: financial indicators, management characteristics, reporting.

- If you are confident in your choice of asset, the unstable state of the economy should not scare you away. Investing in such conditions may seem risky, but as part of a well-calibrated strategy, it is effective.

- Believe in yourself, but remain realistic. There is no need to invest in an obviously unprofitable endeavor.

- If you have not found the right direction, you should not enter the market. It is better to save your funds. Avoid investing for the sake of investing.

 

The article was prepared within the framework of the joint project "The Year of Investing in Oneself" by ARKA, AMI Novosti-Armenia news agencies and Freedom Broker Armenia.  

Read the news first and discuss them in our Telegram

10:00 05/24/2024