Thursday, January 6, 2011

My Investment Philosophy - Warren Buffet

I would like to share my investment philosophy and aims which are pretty simple.

I am primarily a long term value investor yet I am willing to diversify my portfolio with some risky plays and some income plays. My modest aim is to have annual returns of 15-20% on my stock investments. I calculate that I would need roughly 4-5 years to double my money at those returns.

How am I going to do it?

If there's one philosophy I'm trying to stick to, it's Warren Buffet's investment philosophy. Afterall, he is arguably one of the best investors around, yes? He has beaten the market (the Standard & Poor/S&P) by more than 300% from 1977 to 2010 to have returns of 27.5% versusthe S&P's meagre 8.9%! (

How many can consistently give returns of 27.5%! Warren's the man!

As such, I admire not only his ability, discipline and patience and there are only things some of us can strive for.

The key take-away principles from his philosophy for me are:

1) Be fearful when others are greedy, and be greedy when others are fearful. That's how you get rich according to the 'Sage of Omaha' (as he also is known as)

2) Buying stocks are like buying pieces of a business. You're actually buying into the business and into it future success.

2) Always keep in your circle of competency - Ie: Businesses YOU understand and instruments you understand. He stayed away from the 2002 internet stocks bust because these were businesses not only did he not understand but the numbers did not add up!

3) Have a safety Margin. You can never be sure that your valuation of a great business is correct. So always purchase stocks which are lower than your valuation in case you are overestimating its future sucess!

4) Be patient. Economies go through booms and busts. See 1)!

What about you guys? What investment ideas/philosophy do you guys subscribe to?

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