Warren Buffett is the undisputed king of investors. But how can its decades of success be explained? The investment strategy of the US star investor is quite simple and can, in principle, be imitated by any investor.
Warren Buffet’s investment strategy is based on clear principles that investors have remained true to over the years. Under his leadership, his holding company, Berkshire Hathaway, has grown into a successful company, and Berkshire Hathaway stock has become the most valuable stock in the world. The basis of its success is the so-called value investing strategy, characterized by value-oriented investing. The unique feature: although Warren Buffett invests his money mainly in stocks, value-oriented investing makes sense for any investment. With the following five investment tips, you can follow in Warren Buffett’s footsteps.
Table of Contents
1. Quality Over Quantity: Focus On A Few Successful Companies in your investment strategy
With his investment strategy, Warren Buffet relies on a small number of stocks that promise long-term success. He also recommends investors focus on a few outstanding companies from which they expect long-term success. The recipe for his success is so-called moat companies. These moat companies have a unique selling proposition and, thus, a lasting competitive advantage, so it is challenging for them to be pushed out of their place by competing companies.
limit your investment to a few promising companies. It would help if you were so confident in your investment that you wanted to hold it for the long term, or even forever.
2. Be careful with your investment strategy selection
Like Warren Buffett, always research the company you’re investing in before you invest. The reasons for this are obvious: when a successful investor buys a stock in a company, he keeps it for as long as possible. For him, investing in the stock market is more than just buying a stock; instead, Buffett invests in the company that will be responsible for his success over the long term. For Buffett, the bare facts are always decisive.
Check to what extent the company has a competitive business model and a unique selling proposition. Can the company exist on the market in the long term, and does it act largely independently there? Question the management’s leadership style and take a detailed look at the annual reports.
Don’t just buy stocks; invest in a company. So be very careful when doing your research. If you are convinced of a company’s long-term strategy, you should only invest your capital there.
3. You can only invest in products you understand entirely
Star investor Warren Buffett only invests in companies whose business models and products he fully understands. For this reason, Warren Buffett has not supported Bitcoin; he has never fully understood cryptocurrency-a clear exclusion criterion for his investment.
As an investor, you should not only apply this principle from Warren Buffett to your stock investments but also take it to heart for every form of investment: only invest in products that you understand.
Critically question the investment plan. Do you know what the company you want to invest in produces? What opportunities does the company have in the future? Do you understand the corporate strategy? Only when you can answer these questions do you know the opportunities and risks of your investment and can you achieve attractive long-term returns.
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4. Pay attention to the differences in your depot’s products
In addition to adequately selecting individual titles, the portfolio composition is also crucial for success. Warren Buffett focuses on a few outstanding companies and pursues a less diversified investment strategy. From a purely portfolio-theoretical point of view, you will do best with your investments if you diversify your capital wisely. Buffett diversifies in a concentrated manner: he puts together selected and diverse stocks in his portfolio, which complement each other to form a colorful bouquet of securities. It is not the size of the scent of shares that is decisive, but the suitable composition.
In principle, we recommend that you spread the risk of your investment across different products. When diversifying, make sure that your investments complement each other and create a coherent bouquet of securities.
5. Select the best time and be patient
In addition to investment and security, the timing of your investment naturally also plays a crucial role. Warren Buffett continuously calculates with a safety margin, an important core element of the value investing concept coined by Benjamin Graham. When investing in stocks, the margin of safety is the difference between a company’s stock price and the intrinsic value of its stock. In other words, the star investor likes to invest in companies that cost less than they are worth.
Private investors who want to follow in Warren Buffett’s footsteps should therefore swim against the tide from time to time: don’t just buy a share when everyone is buying it; buy a claim even when the share price has reached a low point. But it always has to be a valuable stock and be sure you know this company well. Don’t buy a stock just because it’s cheap.
invest in stocks you trust. In this way, you, too, can trade with a sufficient safety margin and achieve long-term returns.
Warren Buffet’s Secret to Success
Warren Buffett’s secret to success is buying low-risk stocks and picking stocks with high potential for appreciation. The US star investor has summarized his strategy as follows:
“Stocks are easy. You’re just buying shares in a great company with the highest integrity and capable management for less than its intrinsic value.