There is no trader for whom Warren Buffett is not a legend.
The world-renowned “Oracle of Omaha” is famous for making his fortune by investing in undervalued assets. The talent to correctly assess the potential of undervalued companies and buy them at a low price allowed Warren Buffett to enrich many people over fifty years of his career and become one of the richest people himself. in the world.
In addition, he is one of the few people who have made a huge fortune only through exchange trading. It is not surprising that his persona attracts the attention of many thousands of traders, and there is hardly anyone among them who would not dream of repeating Buffett’s success.
Investing mistakes and Warren Buffett’s success
The investing mistake was made clear to Buffett by Benjamin Graham’s The Intelligent Investor he studied at the University of Nebraska Graham’s recommendation was to look for assets that traded significantly below their real value. Using this principle as a guide to action, Buffett explores the business deeply and only buys “discounted” companies.
He invests in a business run by highly professional and successful teams with superior economic performance. In addition, he is interested in companies with a history of sustained growth in above-average earnings. And, perhaps most notably, Buffett does not attach importance to stock market fluctuations, macroeconomic events, or market forecasts.
All this is successfully replaced by his own long-term investment plan. An important indicator is the economic state of the company – as long as its fundamental indicators remain unchanged, Buffett does not sell it, and what is the state of the world economy (even if it is a crisis) does not matter.
Warren Buffett’s Reason for Success
One of the reasons for Buffett’s success echoes the principles of Peter Lynch, the essence of which is to work with those assets that the investor understands as much as possible, and choose those investments with which he feels comfortable. According to Buffett, who has been finding clear confirmation of his solvency for many years, an investor should not complicate his life in search of complex companies. In keeping with this principle, the 38% owner of Berkshire Hathaway wisely kept the company away from high-tech assets despite their rapid growth.
The reason was that Buffett, by his own admission, is not well versed in the high-tech business. And since he is not very well versed in industry in general, he also tries to avoid industrial stocks. Before deciding to invest in a particular company, Warren Buffett makes a forecast of its future for the next 10 years. And according to the trends in the development of high-tech markets, it is safe to say that confident forecasts are hardly possible given the current dynamics.
Warren Buffett’s Key Performance Measure
According to Warren Buffett, the key measure of a company’s profitability is reflected in the return on assets. Therefore, preference is given to a business in which it is possible with a fair degree of confidence to predict income for the next decade. And the special attention of the great investor is used by those companies, investments in which do not require serious capital investments.
The reason is that such companies in many cases generate significantly higher returns on assets. In addition, Buffett is attracted to a business that is characterized by large flows of free cash. Never forgetting the risks, Buffett is convinced that his companies always have sufficient funds to invest in their development after meeting all account obligations.
In the 1990s, Warren Buffett acquired two insurance companies, Geico and General Re, attracted by the methods these companies use to limit and manage debt. In addition, the investor was interested in the “floating money” of the insurance business. Given that the clients of such companies pay premiums first, and payments for insured events are often made much later, the companies have stable cash flows. Buffett’s experience and investment talent.
In 2002, Buffett entered the foreign exchange market for the first time. “In 2003, we increased our position as I became more and more bearish towards the dollar,” the investor explained. It clearly followed from his words that in these investments he did not feel comfortable enough and, accordingly, they did not attract him too much.
At first glance, these details are not directly related to Forex traders. However, certain conclusions from them are not so difficult to draw. And the main ones are, perhaps, that a trader can achieve success only if he understands well what he is doing, carefully and very seriously works out his plan and never takes any rash actions.
