Week In Review: Think Like Warren Buffett

Think Like Warren Buffett

Warren Buffett is probably the preeminent investor of our time. The combination of his investor returns, longevity, and folksy wisdom has made him very popular. Many small investors want to think like Warren Buffett. But what exactly does that mean and can you do it? I would argue it does not mean replicating his portfolio or his buys and sales though some investors may try. Buffett bought Coca-Cola (KO) and some other stocks decades ago when it was undervalued and expanding internationally. If you buy Coca-Cola today for the dividend and safety in order to copy Buffett’s portfolio, it is still the dominant soft drink company, but it is no longer growing as fast.

I have a written about Buffett before, but I am not an expert on him. You can read my recent article on Highlights from Warren Buffett’s Annual Letter for 2020 of from 2019. There are also biographies on the Buffett. But what does it take to think like Warren Buffett? Many investors try. Indeed, today, there is even a website with the same title as this article. It is unlikely that you will be able to replicate Warren Buffett’s success over an extended period of time. However, most everyone can still learn from him much like an everyday chess player can learn from reading about a Grand Master. The goal is to learn and improve your investing strategy and skill. With that in mind let’s see how we can think like Warren Buffett.

3 Things to Focus on To Think Like Warren Buffett:

Stocks Are a Business

Stocks are historically a piece of paper. Today, most of us trade online and stock certificates and record keeping are mostly digital. But stocks are more than that. Stocks represent ownership in a business. By buying a stock you are in investing in and becoming part owner in a business. So, the idea here is to think like Buffett you must think like as a business owner, which is long-term. Yes, you may be able to make profits trading on market volatility for stock price. But if you are thinking like a long-term business owner then are probably going to hold the stock for years. You will get a share of profits through dividends that you can reinvest and leverage the power of compounding.

Wait for The Fat Pitch

To think like Warren Buffett, you must wait for the fat pitch. This is an analogy to baseball where Ted Williams would wait for a pitch in the specific area of the plate where he had a higher probability of getting a hit. But Buffett’s thought process is much the same. He wants to swing for the fences when the right investment opportunity comes along. He suggests that investors act as if they owned a card with 20 investment choice punches in it. This would prevent investors from making bad investment decisions and improve their overall returns. The advantage of this philosophy is really only opportunity costs meaning you lost out on gains from an investment. There is no penalty. However, if you make a bad decision then you can lose your initial capital.

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