Sunday, November 15, 2009

Warren Buffett investment strategy

Warrenn Buffett is a real investment guru who earned his enormous assets by investing in capital markets and with strict adherence to certain rules which every investor knows but few respects. In fact Warren Buffett investing strategy may have for ordinary investors more negatives than positives and ultimately may lead to the desired profit.

One of the reasons is the size of transactions and volume of funds which most investors have only dreamed of. Buffett can afford to invest billions of dollars, which his company Berkshire Hathaway has which allows him to buy his interest for shares in companies. At the same time it provides a better bargaining position when entering into the company for an interesting price.

Another related significant difference compared with the ordinary investor is that Buffett often buy shares to own that company (or at least significant part). As an example can be Coca Cola (KO), Wells Fargo (WFC), Procter and Gamble (PG), and last but not least mentioned Burlington Northern Santa Fe Corp. (BNI), which make up the majority of its entire portfolio. He often buy preferred stocks selected companies that give quite an interesting advantage over ordinary investors.

It also reflects the basic principles of long-term investment horizon (and its strict compliance), buying stocks of well-established companies whose functioning well understood by the investor at a low price and limited diversification (with Berkshire Hathaway Buffett owns more than 40 titles from various sectors such as consumer goods, finance, energy, industry, health, etc.).

In recent years, the Buffett and his investment company quite significantly deviates from the established rules which brought him his fortune. The first problem is the purchase of shares of companies in terms of fundamental analysis do not meet his criteria of values and eventually some of them had to quickly get rid of. Examples can be expensive buying shares in recent years, like Anheuser Busch (BUD), Wrigley (WWY.BA), Conoco Philips COP) or two Irish banks, which recorded big losses.

Perhaps the biggest disappointment for many investors seeking to invest on the basis Buffett's rules is a relatively large amount of funds that are kept in derivative instruments. Buffett has always been known for his very negative attitude to derivatives. Even though he sold options with a value of 4 billion U.S. dollars. It is also a fairly risky naked put options.


1 Response to "Warren Buffett investment strategy"

Jason said... November 26, 2009 at 6:12 AM

for a live up-to-date look at the stocks in Warren Buffett's Berkshire Hathaway portfolio, here's another useful resource: