Warren Buffett
An Investment Guru
A "University" for all those who want to enter in the world of investment.....
Buffett takes this value investing approach to another level. Many value investors do not support the efficient market hypothesis (EMH). This theory suggests that stocks always trade at their fair value, which makes it harder for investors to either buy stocks that are undervalued or sell them at inflated prices. They do trust that the market will eventually start to favor those quality stocks that were, for a time, undervalued.
Investors like Buffett trust that the market will eventually favor quality stocks that were undervalued for a certain time.
Buffett, however, isn't concerned with the supply and demand intricacies of the stock market. In fact, he's not really concerned with the activities of the stock market at all. This is the implication in his famous paraphrase of a Benjamin Graham quote: "In the short run, a market is a voting machine but in the long run it is a weighing machine.
He looks at each company as a whole, so he chooses stocks solely based on their overall potential as a company. Holding these stocks as a long-term play, Buffett doesn't seek capital gain, but ownership in quality companies extremely capable of generating earnings. When Buffett invests in a company, he isn't concerned with whether the market will eventually recognize its worth. He is concerned with how well that company can make money as a business.
Buffett's Methodology
Warren Buffett finds low-priced value by asking himself some questions when he evaluates the relationship between a stock's level of excellence and its price.7 Keep in mind these are not the only things he analyzes, but rather, a brief summary of what he looks for in his investment approach.
1. Company Performance
2. Company Debt
3. Profit Margins
4. Is the Company Public?
5. Commodity Reliance
6. Is it Cheap?
The Bottom Line
As you've probably noticed, Buffett's investing style is like the shopping style of a bargain hunter. It reflects a practical, down-to-earth attitude. Buffett maintains this attitude in other areas of his life: He doesn't live in a huge house, he doesn't collect cars, and he doesn't take a limousine to work. The value-investing style is not without its critics, but whether you support Buffett or not, the proof is in the pudding.