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Here Are 6 Rules For Investing Like Warren Buffett
7 years ago

Here are some other rules about investing like Warren Buffet

1. Read the Buffet Partnership and early Berkshire letters. You will find out that over 65% (two thirds) of his out-performance came from merger arbitrage NOT value investing.

Now how many articles do you see talking about merger arbitrage? Not as many as value investing.

2. The next part of his out performance comes from his clever use of leverage. Insurance. Buffet invests the insurance float (policy holders money), which is the equivalent of a margin loan.

How many articles do you see talking about how to manage investing on margin? Not as many as talk about the principles of value investing.

3. Buffet is a brilliant business man (he figured out pretty early that he had bought a dud with Berkshire and stopped investing most of the operating cash flow back in the business and started putting it into insurance companies.) But if anyone thinks they will get Buffet like performance following the 'rules of value investing' as espoused by Graham, Buffet or anyone else, think again.

4. Buffet used to be a market timer (now he is like a mutual fund, since he is too big to get in and get out). Recall he liquidated the Buffet Partnerships when the market was bubbling. He only buys when 'there is blood in the streets' (buy when others are fearful, sell when they are euphoric) whether you read moods, charts of the tape, the effect it he same.

5. People talk about margin of safety. But Buffet (and Graham) talk about a 30% margin of safety. It is no surprise that the average deep correction is about 30%.

Value investing is great if your really understand it (and have the emotional control to buy when the street is crying). And can deliver overperformance over the long term with lots of drawdowns and periods of under performance inbetween. Most people can not stick with value investing because the drawdowns shatter their confidence.

In this article: BRK-A
Here Are 6 Rules For Investing Like Warren Buffett
7 years ago

The reason for the popularity of Oliver Stone's Gordon Gekko character is that he was refreshingly honest about money. No BS about adding value by being a 'capital allocator'.

"The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's b'sh!t. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market. " Gordon Gekko

In this article: BRK-A
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