Making money in equity markets is never easy. More so, during a period when most markets across the world are experiencing distress.
This is why the successes of investors like Warren Buffett continue to serve as an inspiration to many globally. In fact, his learnings are endless and his letter to shareholders has been a guide to value investing for investors for the past 4-5 decades.
Here are some mantras that the Berkshire Hathway founder himself swears by and has followed over the years
Look at the broader picture
Vested deep within Buffett's strategy is an emphasis on looking at the bigger picture. According to his method, it is always better to acquire low leveraged stock with growth potential and to look for stocks whose business one can analyse.
Place a focus on business quality
According to Buffett, it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price. What he means here, is that those firms that make high returns on the capital tied up in their business contain the potential to compound their earnings quicker than those businesses that have lower returns. As a result, the intrinsic value that these firms rise over time.
When you buy something, prepare to hold to it forever
Vested deep within Buffett's strategy is the notion of buy and keep. He is a strong believer that quality businesses earn high returns and increase in value over time, which is why he famously once said: "Be fearful when others are greedy and greedy when others are fearful".
Also Read: Top 10 takeaways for investors from Warren Buffett's annual letter to shareholders
Illusion is not reality
In his letter to shareholders last year, the legendary investor said investing illusions can continue for a surprisingly long time. "Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide," he had said.
Not for the first time, Buffett continues to emphasise that Berkshire’s portfolio is 'a collection of businesses' not just tickers on a screen.
The quality of a company’s business is reflected in metrics like growth, both in revenue and retained earnings as well as return on capital, among others.
Of course, the price one pays in relation to these metrics is an important factor, but periodic fluctuations in price should not matter much to a fundamentals-focussed investor.
In the same vein, Buffett highlights Berkshire’s property/casualty insurance operations, BNSF and Berkshire Hathaway Energy, among many other privately-owned businesses that don’t have daily stock prices.