Insights

What are the main learnings from Warren Buffett's investment principles?

03 October 2018  |  EDUCATION

The Sage of Omaha is often cited as the world’s greatest investor. Over his 87 years, he has accumulated a net worth of billions. Common lore suggests he did this by buying stocks and holding onto them for prolonged periods, allowing them to appreciate over time. While he does tend to hold stocks longer than the average offshore investor, it’s not as straightforward as it appears.

Buffet believes the smartest investment style is to focus on active ownership. He doesn’t just buy shares. He buys enough shares to be invited onto the company board. Once there, he can directly influence decisions. And, so for example, by making sure the right C-suite is hired and the right policies are followed, he ensures the company will be successful, which raises the value of his stockholding. And while he does prefer a long-term portfolio, he no longer owns 19 of the first 20 companies he invested in, so his ‘hold’ policy does have caveats.

Think, buy, and hold

The average investor doesn’t have enough funds to buy large volumes of stock – certainly not large enough to become an owner. But you can apply his other investment principles, such as  knowing what to buy and knowing when to sell. Start by intensely researching the companies you buy stocks in. Monex can help you with that because we offer you access to 12 markets including Asia and the US. When you trade with us, we offer you relationship managers, investment research, and platform training sessions in different languages.

While you can’t join the board, you can keenly observe the company’s comings and goings, following them on the news and understanding their decisions.  Your Monex relationship manager can help you. Buffet advises investors to stick to the familiar, buying stocks and shares in sectors they understand and take a prolonged view to their portfolio. Once again, high-quality research helps. In a world of rumours and clickbait, our research guidance can show you what ‘news’ factors to focus on and which ones to ignore.

Keep a close watch

Another tip from Buffet is to act like an owner, even if your cash input doesn’t allow you that level of clout. Whether you have a million shares or a millionth of a share, you’re still a ‘part-owner’ so pay attention to your business. You should ideally begin before you buy, exploring the company’s market position, partners, operational strategy, leadership decisions, suppliers, managerial style, and more.

These will inform whether their stocks are worth purchasing. Buffet is famously quoted as saying, ‘If you’re not open to holding a stock for ten years, don’t think about buying it for ten minutes.’ But at the same time, this doesn’t mean you retain your shares forever. By active involvement (or at least active consumption of the right data), you can tell when it’s time to sell. Just don’t plan to sell on a day-to-day basis. Buffett is definitely not a day trader.

To learn more about investment principles, start investing for yourself, or  open a trading account, fill out our Monex contact form and we’ll get right back to you.


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