The Most Important Lesson I’ve Learned From Warren Buffett
Every so often we like to step outside the normal mold, and give readers something different. One of the great things about StreetAuthority.com is that we can write about anything we want – well anything related to investing at least – so long as we see it as a value to our loyal subscribers. We have a variety of newsletters that specifically focused on recurring investment themes or strategies, but not this one.
#-ad_banner-#​StreetAuthority.com is our main outlet to share with you what we would want to know if our roles were reversed. Fairly often our top analysts will respond to reader Q&A, and the exchange proves to be a very candid look into the thought processes of our top analysts.
So today I wanted to share with you a Q&A from one of our readers that addresses an important question many investors face.
Where do I start and which strategies should I follow?
With so many different investing strategies out there, it’s tough for investors to know where to begin or what advice to follow.
A reader posed this question to Andy Obermueller, Chief Investment Strategist for Game-Changing Stocks, wondering why he doesn’t seem to follow the approach of legendary investor Warren Buffett.
Andy is a longtime Buffett follower, and he does an excellent job of explaining what Buffett looks for when analyzing a company. But since he typically looks for stocks with triple-digit growth potential in his premium advisory, Game-Changing Stocks, Andy takes Buffett’s advice and applies it in his search for what he calls “The Next Big Thing.”
Here’s the question along with Andy’s answer from an October issue of Game-Changing Stocks:
| Q. Andy, I’m new to investing, and I’ve been reading a lot about Warren Buffett. You don’t seem to follow his approach, though. Given his track record, isn’t it more “hyper-rational” — to borrow your word — to follow his lead? — Gabe M., Rogers, Arkansas. A. Warren Buffett is indeed one of the most successful investors of all time, and I am a devotee. I’ve been to Berkshire Hathaway’s annual shareholder gathering (aka, the “Woodstock for Capitalists”) on a number of occasions, and I’ve read every shareholder letter that he has written since taking over as the chairman of Berkshire Hathaway in the 1960s, which I can tell you is far more worthwhile than pursuing an MBA. Buffett’s advice is always worth following, as he’s usually right. Buffett’s basic rules for investing center on two prime considerations: The cost of funds, which is always the market return, and the notion of intrinsic value, which is the actual worth of an enterprise and the value it can deliver over the course of ownership. As far as choosing investments is concerned, Buffett’s mantra is never to invest in anything that you do not fully understand. Buffett, following this rule, famously eschews investing in the type of cutting-edge, high-tech companies that I tend to focus on. A lot of people assume that this is because Buffett — who is in his 80s — doesn’t understand technology. This is not true. Buffett is leery of technology companies because 1) they have to invest massive sums in product development and 2) the fast-paced nature of innovation makes it difficult to maintain a sustainable competitive advantage, which is one of his requirements for investment. Taken together, Buffett is looking for companies that can deliver value, and he hopes to buy them at an attractive price, one that would indicate that Wall Street is failing to perceive their actual worth. I would argue that I seek to do the same thing. I look for trends that will fuel companies focusing on The Next Big Thing, and I make every effort to make sure I fully understand the company, its industry, the marketplace and the technology at issue. Additionally, my benchmark is the same as his: The investment has to be likely to outperform the market over time. Now, clearly I am not Warren Buffett. But I do heed his advice and I try, in some ways, to leverage his wisdom. The only real difference is our selection universe. |
I think Andy’s answer does a good job of proving that you don’t have to mirror Warren Buffett’s every move to achieve great returns in the stock market. The best thing most investors can do is actually learn how Buffett approaches his investment decisions and apply those lessons to your own portfolio, which should be centered around your own specific goals. There’s no need to copy Buffett’s every single move.
For Andy and his Game-Changing Stocks subscribers, that means investing in “The Next Big Thing.” Andy spends countless hours each week in pursuit of the latest cutting-edge trends that could deliver triple-digit gains for investors. In fact, he just spent the past six months creating a report called “11 Shocking Investment Predictions for 2015″ — any investor looking for outsized growth opportunities should read it. To get your hands on his report, simply follow this link.