Canadian Money Forum banner

1 - 20 of 22 Posts

·
Registered
Joined
·
45 Posts
Discussion Starter · #1 ·
Hey guys!!!

I´ve always been a fan of Warren Buffett´s strategies, thoughts, rules about investing and money.

It is interesting for me to discuss with you guys about some of the strategies that he applies which are totally different to what people generally believe.

The fact is: his investment style is very slow, passive and veeery long-term, in the complete meaning of the word what he does is really invest.
Proof of this are the years that he kept on buying Coca Cola stocks and with the dividends he bought more and more (you get the idea). A lot of investors when they see a profit they go and liquidate those profits maybe to invest in another asset, stock or to buy something they want. Warren Buffett always had (and has) the focus in long term investing, all the years necessary without touching a single cent of his profits.

2nd strategy I like is DON´T diversify, instead; focus the efforts in just one company. Contrary to what people normally believe that we should actually diversify so that we don´t have all our eggs in just one basket Mr.Buffett actually does the exact opposite thing, in the Coca Cola example above explained. When he saw that Coca Cola stock was a good investment he decided to focus all of his efforts in buying only stock from that particular company.

How much of this can we really apply in our financial lives?

What do you think about his strategies?
 

·
Registered
Joined
·
4,229 Posts
If you study Buffet's career you will find his strategy constantly evolving and changing to meet new circumstances. A lot of it had to do with his growing success. A young Buffet would never have bought Coca Cola. But eventually he had so much money to invest that he couldn't buy the little obscure companies that made his fortune.

You will also find he was a stone cold miser when he was a small child and still is. His dedication to a buck is something very few people have and it is another big factor in his success.
 

·
Registered
Joined
·
3,764 Posts
yes, he is interesting and insightful.
One thing that caught my attention is his claim that risk is not volatility. Risk is addressed by buying quality.

concentrating in a handful of stocks ( he had more than KO) is a decent strategy provided one can identify quality stocks.

You should see the thread argos5pack.
 

·
Registered
Joined
·
45 Posts
Discussion Starter · #4 ·
If you study Buffet's career you will find his strategy constantly evolving and changing to meet new circumstances. A lot of it had to do with his growing success. A young Buffet would never have bought Coca Cola. But eventually he had so much money to invest that he couldn't buy the little obscure companies that made his fortune.

You will also find he was a stone cold miser when he was a small child and still is. His dedication to a buck is something very few people have and it is another big factor in his success.
yes, he is interesting and insightful.
One thing that caught my attention is his claim that risk is not volatility. Risk is addressed by buying quality.

concentrating in a handful of stocks ( he had more than KO) is a decent strategy provided one can identify quality stocks.

You should see the thread argos5pack.
Hi!!

Yeah it is very interesting!! Two things:

-His constant study and dedication to the stock market surely has given him the experience and knowledge to know when to change his strategy depending on a lot of factors and as you said: evolve depending on new circumstances.
-Concentrating on a handful of stocks is basically the focus I´ve seen in him, 100% focus in just a couple of companies that are doing great instead of what the average or particular investor does that is buy all that moves hoping to win the stock lottery someday.

Question: Why do you say ¨little obscure companies tha made him his fortune¨?
 

·
Registered
Joined
·
5,223 Posts
i own berkshire and kraft but i wouldn't own any of his other top 4 investments (stock i mean), namely ibm, wells fargo, coke and amex

wells fargo might be a decent bank but amex, ibm and coke are living a decade or two behind the the world we now live in

he thinks like an old guy

but his idea of buying top quality companies with strong competitive advanatages and holding them long term makes a lot of sense ... hopefully he also knows when to sell
 

·
Registered
Joined
·
14,815 Posts
BRK is well diversified. They own hundreds of companies or their stock, and are involved in providing financing at favorable terms.
 

·
Registered
Joined
·
2,150 Posts
This thread shows how naive and uninformed some people are. Do you think buffet just bought some undervalued stocks and rode it from zero to 45 billion. If that was the case then there are tons of smart people that did the same and nowhere near his level of wealth including his mentor Graham.

Buffet got rich by owning insurance companies. Insurance companies have access to large amounts of current free cash in the form of premiums and they dont have to pay out for like 40 yrs until some one dies. So all those premiums come in now and the get invested and compound like crazy for that whole time.

So you can research all the stocks you want and buy Berkshire and probably do ok. Much like owning the S&P or something. But thats not how he got super rich.
 

·
Registered
Joined
·
4,229 Posts
The very first thing he did was start an investment partnership. His $10,000 plus $150,000 raised from family and friends. Not much extra work, and he got paid a percentage of the profits. It's all about using other people's money.

Another thing he did early on was invest in 'cigar butt' stocks. These were beaten down stocks that 'might have one good puff left in them'. He learned this from Ben Graham. If a stock has gone from $50 or $75 to $5 go ahead and buy it - if it has $10 worth of assets behind each share. Wait for the bankruptcy settlement, and if it pops up 50% in the meantime, sell. It doesn't take much good news to get a beaten down $5 stock to $7.50.

He made a lot of money out of stocks like that and companies like the New York Trap Rock Company, Virginia Natural Bridge Company, little auto parts makers in Detroit in the 50s. But you can only invest in **** like that when you have a small amount to invest. When you have billions to invest there is no use in looking at anything but the biggest companies. Buffet himself has said that he could do way better percentage wise if he was investing 1 million rather than billions.

Buffet has always been a value investor, in other words shopping for bargains. Trying to find a stock that is objectively worth $10 that is selling for $5. These are always forgotten or neglected boring companies, or companies that have had a run of shitty luck and nobody thinks they are worth anything.
 

·
Registered
Joined
·
20,512 Posts
Buffett first made his fortune during a time that was very different than today: stock market valuations were very low (see Shiller PE) and he aggressively speculated in the early phases of a long lasting bull cycle. Once he made that initial capital -- which was enormous for his young age -- he went on to take on more risk.

The environment today would probably not allow someone to repeat this success story. Valuations right now are sky high, and if anything we're near the end (not the start) of a bull phase.

Nobody gets rich by investing when the Shiller PE is 30.
 

·
Registered
Joined
·
7,091 Posts
Concentration in a few good stocks has made many of today's rich. Gates, Elison, Zuckerburg, Bezos, Slim just to name a few.
 

·
Registered
Joined
·
1,343 Posts
Buffett first made his fortune during a time that was very different than today: stock market valuations were very low (see Shiller PE) and he aggressively speculated in the early phases of a long lasting bull cycle. Once he made that initial capital -- which was enormous for his young age -- he went on to take on more risk.

The environment today would probably not allow someone to repeat this success story. Valuations right now are sky high, and if anything we're near the end (not the start) of a bull phase.

Nobody gets rich by investing when the Shiller PE is 30.
Yes. He was a deep value investor first,then did well in the booming 60's - 90's really buying 'great companies at good prices'. He also bought insurance companies and used their floats as a source of capital. Now he recommends to just buy the S&P 500 index as it is too hard to beat the market regularly any more.
 

·
Registered
Joined
·
3,764 Posts

·
Registered
Joined
·
1,042 Posts
If you look carefully at his record, Buffet has also made some very large and successful market timing bets.
Also take a look at how much Buffet was worth at age 40,50 and 60. Those numbers may surprise you.

Don't believe everything you read about him either. Much of it focuses on only a few things and ignores or glosses over much more important stuff in my opinion.
 

·
Registered
Joined
·
45 Posts
Discussion Starter · #14 ·
This thread shows how naive and uninformed some people are. Do you think buffet just bought some undervalued stocks and rode it from zero to 45 billion. If that was the case then there are tons of smart people that did the same and nowhere near his level of wealth including his mentor Graham.

Buffet got rich by owning insurance companies. Insurance companies have access to large amounts of current free cash in the form of premiums and they dont have to pay out for like 40 yrs until some one dies. So all those premiums come in now and the get invested and compound like crazy for that whole time.

So you can research all the stocks you want and buy Berkshire and probably do ok. Much like owning the S&P or something. But thats not how he got super rich.
You are right! I read that too. He owned a lot of insurance stock so maybe in his early phases that was what skyrocketed his dividends. Still we have to admit that it is risky to start investing large sums of money in just a few insurance companies without knowing what´s going to happen, the idea is to really know that your investment is the correct one and that will make you a profit.
 

·
Registered
Joined
·
45 Posts
Discussion Starter · #15 ·
The very first thing he did was start an investment partnership. His $10,000 plus $150,000 raised from family and friends. Not much extra work, and he got paid a percentage of the profits. It's all about using other people's money.

Another thing he did early on was invest in 'cigar butt' stocks. These were beaten down stocks that 'might have one good puff left in them'. He learned this from Ben Graham. If a stock has gone from $50 or $75 to $5 go ahead and buy it - if it has $10 worth of assets behind each share. Wait for the bankruptcy settlement, and if it pops up 50% in the meantime, sell. It doesn't take much good news to get a beaten down $5 stock to $7.50.

He made a lot of money out of stocks like that and companies like the New York Trap Rock Company, Virginia Natural Bridge Company, little auto parts makers in Detroit in the 50s. But you can only invest in **** like that when you have a small amount to invest. When you have billions to invest there is no use in looking at anything but the biggest companies. Buffet himself has said that he could do way better percentage wise if he was investing 1 million rather than billions.

Buffet has always been a value investor, in other words shopping for bargains. Trying to find a stock that is objectively worth $10 that is selling for $5. These are always forgotten or neglected boring companies, or companies that have had a run of shitty luck and nobody thinks they are worth anything.
I agree with you about that ! Reading Robert Kiyosaki´s books he always speaks about two main rules
-OPM: Other people´s money.
-OPT: Other people´s time.

Kiyosaki explains that for us to use the leverage strategy the right way we should try to always make a profit using other people´s money and time for example the banks money or in Buffett´s case his friends and family´s money to make a profit in the stock market.

Very clever and very interesting the way in which he has grown a 45 (or more) billion dollar portfolio starting with just $160 000.
 

·
Registered
Joined
·
45 Posts
Discussion Starter · #16 ·
Yes. He was a deep value investor first,then did well in the booming 60's - 90's really buying 'great companies at good prices'. He also bought insurance companies and used their floats as a source of capital. Now he recommends to just buy the S&P 500 index as it is too hard to beat the market regularly any more.
So basically due to a lot of social, economic, cultural and technological factors we won´t be able to do the same thing he did back in the day? and after taking all this risk and becoming rich by doing so he recommends to stay indexed instead of following the strategies that made him billions in the past?
 

·
Registered
Joined
·
1,343 Posts
So basically due to a lot of social, economic, cultural and technological factors we won´t be able to do the same thing he did back in the day? and after taking all this risk and becoming rich by doing so he recommends to stay indexed instead of following the strategies that made him billions in the past?
Must be a rhetorical question but yes. The why has been explained a few times already and again he recommends simple indexes now.
 

·
Registered
Joined
·
5,223 Posts
Buffet got rich by owning insurance companies. Insurance companies have access to large amounts of current free cash in the form of premiums and they dont have to pay out for like 40 yrs until some one dies. So all those premiums come in now and the get invested and compound like crazy for that whole time.

So you can research all the stocks you want and buy Berkshire and probably do ok. Much like owning the S&P or something. But thats not how he got super rich.
thats why i own berkshire, for his insurance business and assorted wholly owned subsidiaries and kraft heinz ... i wouldn't own coke or amex myself but they are a small part of the overall holdings
 

·
Registered
Joined
·
45 Posts
Discussion Starter · #19 ·

·
Registered
Joined
·
45 Posts
Discussion Starter · #20 ·
thats why i own berkshire, for his insurance business and assorted wholly owned subsidiaries and kraft heinz ... i wouldn't own coke or amex myself but they are a small part of the overall holdings
Yeah he knew the exact moment to buy Coke stock for example now it is not a great deal to do so.
 
1 - 20 of 22 Posts
Top