The Warren Buffet Way by Robert G. Hagstrom
Best Investment Advice ― The size of an investor’s brain is less important than his ability to detach the brain from the emotions.
This is one of the best pieces of advice a novice investor can get. The problem with the decision-making of humans is that it is driven by EMOTION, not REASON. This equivocal trait of humans is clearly not welcomed in the Stock Market.
To help you defeat your emotional urge, Robert G. Hagstrom in his book The Warren Buffet Way has suggested the 12 Tenets on which Buffett runs Berkshire Hathaway. These 12 Tenets are divided into 4 categories and are discussed in brief below;
12 Timeless Tenets of Investing ― The Warren Buffet Way
1. Business Tenets:―
We must only consider investing in a business that we understand. Fledgling investors have this habit of ignoring the understandably profitable enterprise in favour of inexplicable and flamboyant ventures.
The Business Tenets of he Warren Buffet Way involve focusing on 3 main areas of business which are as follows;
- Is the business simple and Understandable?
- Does the business have a consistent operating history?
- Does the business have favorable long-term prospects?
2. Financial Tenets:―
The Financial Tenets of The Warren Buffet Way call the attention of the investors to the following;
- Return on Equity(ROE), not Earnings per Share(EPS)
- “Owner Earnings”
- Companies with high-profit margins
- For every dollar retained make sure the company has retained at least one dollar of market value.
3. Management Tenets:―
The Management Tenets of The Warren Buffet Way take into account the honesty and competency of the senior managers of the company. It lists down the 3 important qualities that the senior managers must possess:
- Is Management Rational?
- Is Management candid with its shareholders?
- Does Management resist institutional imperatives?
Must- Read in Investing: 3 Powerful Principles To Intelligent Investing from The Intelligent Investor by Benjamin Graham
4. Market Tenets:―
The business should be available at a very attractive price. The Market Tenets of The Warren Buffet Way involves 2 interrelated cost guidelines for rational investing:
- What is the value of the business?
- Can the business be purchased at a significant discount on its value?
It must be noted that not all of Buffett’s acquisitions display all these 12 tenets but taken as a group, these tenets constitute the core of his equity investment approach.
Bonus Investing Tip ― Hagstrom further writes that the greatest challenge to emulating Buffett is not in the selection of the right stocks, but in having the courage to stick with sound investments in the face of economic and market uncertainty.
Courage to stick with sound investments in the face of economic and market uncertainty comes from a Pro-level understanding of the Bear Markets. Here are 15 Powerful Lessons On Bear Market to help you muster the required courage to stick to your “sound investments.”
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That’s all we have for today. Thanks a lot for tuning in to HappinessDhaba. Do let us know your views on these 12 tents of investing in the comment section.
Happy Investing!
Signing off with my favorite words.
Zindagi Zindabad!
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