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Friday, October 22, 2010

The Tenets Of Warren Buffett

Posted by Opa Rock at 8:17 PM

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Peter Lynch

Visiting stores and testing products is one of the critical elements of the analyst’s job.

Wisdom of Peter Lynch

Peter Lynch

If you hope to have more money tomorrow than you have today, you've got to put a chunk of your assets into stocks. Sooner or later, a portfolio of stocks or stock mutual funds will turn out to be a lot more valuable than a portfolio of bonds or CDs or money-market funds.

Warren Buffett

“The market is there to serve you and not to instruct you. It is not telling you whether you are right or wrong. The business results will determine that.”

On selling stocks:

"I don't like to sell. We buy everything with the idea that we will hold them forever... That's the kind of shareholder I want with me in Berkshire. I've never had a target price or a target holding period on a stock. And I have enormous reluctance to sell our wholly owned businesses under almost any circumstances."

When To Sell

The rules for selling are simple. Ignore all that “know the balance sheet” and “know the present value of the future cash flows” garbage. You can’t know it. Not even the experts know it. The smartest thing you can do is admit you don’t know it, and follow the only two reasons to sell stock you’ll ever need:

When the reason you invested is no longer present, or
When your point of maximum pain has been hit.

You’ll be infinitely wealthier, and it takes a lot less work!

Look for companies with economic moats

A key characteristic supporting consistent operating history is a sustainable competitive advantage. In other words, a company should have a barrier to entry -- or a kind of moat -- that keeps potential competitors at bay.

Price To Earnings Ratio

Ben Graham:"We suggest that this P/E limit be set at 25 times average earnings and not more than 20 times those of the last 12 month period."

Qualitative investment decisions

"The right company (with the right prospects, inherent industry conditions,management,etc.) means the price will take care of itself...this is what causes the cash register to sing. So the really big money tends to be made by investors who are right on qualitative decisions." WB

Defensive Stocks

A stock that tends to remain stable under difficult economic conditions. Defensive stocks include food, tobacco, oil, and utilities. These stocks hold up in hard times because demand does not decrease as dramatically as it may in other sectors. Defensive stocks tend to lag behind the rest of the market during economic expansion because demand does not increase as dramatically in an upswing.

Friday, October 22, 2010

The Tenets Of Warren Buffett

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