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Investing

The Warren Buffett Approach to Value Investing

Chris Susanto 

16 January 2023

Who is this article for:
Beginners who want to understand more about Warren Buffett and value investing

Who is Warren Buffett

Mr Market

Source: AZ Quotes

Warren Buffett is a billionaire businessman and investor.

He is considered one of the most successful investors of all time and is often referred to as the “Oracle of Omaha” for his ability to generate returns for his investors.

He is also the chairman and largest shareholder of Berkshire Hathaway, a conglomerate holding company that owns various businesses and has big investments in other companies.

His approach to investing – using the value investing methodology has been admired and studied by many investors for decades.

He is also well known for his frugal lifestyle and for giving away a large portion of his wealth for charitable causes.

In this blog post, let’s take a closer look at Warren Buffett’s approach to value investing and what we can learn to help us become better at building our wealth.

What is Value Investing?

Value investing is an investment strategy involving buying stocks undervalued by the market based on their intrinsic value.

The goal of value investing is to identify companies with strong fundamentals but are currently trading at a price lower than their intrinsic value.

The idea is that the market will recognize the company’s true value over time, and the stock price will rise.

Warren Buffett’s approach to value investing is based on the idea that the market is not always efficient and that there are opportunities to buy stocks that are trading at a discount to their intrinsic value.

This means that Warren Buffett does not believe in the efficient market hypothesis, which states that when new information comes into the market, it is immediately reflected in stock prices. 

Warren Buffett’s Approach to Value Investing

One of the key principles of Warren Buffett’s approach to value investing is to focus on the long term.

Warren believes investing in a company for the long term allows an investor to ride out any short-term fluctuations in the stock market.

Warren participates in the growth of the company over time. A growing company will usually have increasing earnings, which drives the stock price higher over time.

So, it is not true that Warren Buffett does not invest in growth companies. In fact, he said that growth and value are joined at the hips.

The Warren Buffett Approach to Value Investing

Image source: Tailor Brands

Most companies, especially the great ones, are meant to be held onto for the long term. This is because it takes a long time to build great businesses and even longer to create real wealth.

The stock market tends to be very volatile in the short term but rises over the long term.

Investing for the long term also allows the power of compounding to work in his favor. The longer the investment is held, the greater the power of compounding.

Another principle of Warren Buffett’s value investing approach is focusing on the company’s quality.

He looks for companies with strong competitive advantages, such as a strong brand, a loyal customer base, or patented technology. These companies are more likely to be successful long-term and generate consistent profits for the shareholders.

That is why Warren Buffett has large positions in companies with great brandings, such as Coke and Apple (plus Apple has a lot of patented technology as well).

Warren Buffett also pays close attention to the financials of the companies he invests in.

He looks for companies with strong balance sheets and consistent earnings.

More importantly, he also looks for companies trading at a discount to their intrinsic value.

Warren Buffett has said before that his definition of intrinsic value is simply: “the discounted value of the cash that can be taken out of a business during its remaining life.”. 

stock investors emotionally intelligent

Image source: Pixabay

Another important aspect of the Warren Buffett approach to value investing is to be patient.

Warren believes that great investments take time to develop and that it is important to be patient and wait for the right opportunities to present themselves.

He also stresses the importance of having a margin of safety when investing, which means investing in companies trading at a large discount to their intrinsic value. This provides a buffer against any unforeseen risks.

Conclusion to The Warren Buffett Approach to Value Investing

The Warren Buffett approach to value investing is based on the principles of long-term thinking, quality of the company, paying close attention to financials, being patient, and having a margin of safety in the buying price of the company.

By following these principles, investors can increase their chances of success and build wealth over time.

It is important to note that Warren Buffett’s approach to value investing is not a get-rich-quick scheme, as it requires patience, discipline, hard work, and a long-term perspective.

Warren Buffett’s method for building wealth over time is through disciplined and thoughtful investing.


Disclosure:

I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer:

The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.

Important: Please read our full disclaimer.

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Chris Susanto

Chris Susanto

Chris is the Founder of Re-ThinkWealth.com & VIM (Value Investing Mentorship Club®), as well as the Co-Founder of Alevate Invest.

He is also a Member of the Board of Directors at Bansea and an Independent Director in Bansea Fund 2. Bansea is Asia’s oldest angel investment network, founded in 2001.

Chris started investing in stocks early at age 21 and is a big proponent of business-like stock investing – a mixture of value and growth investing.

He invests in listed companies where there is value to be found (as long as it is still within his circle of competence), be it a turnaround, depressed, value, or quality growth company (compounders).

Some of the places where Chris has been invited to speak or has added value as a mentor or writer include Singapore Polytechnic, SMU Institute of Innovation and Entrepreneurship (IIE), Seedly TV, Dollars and Sense, The New Savvy, Value Walk Blog, Investment Moats, NUS Tembusu College, NUS Investment Society, CGS-CIMB Singapore, Singapore Financial Conference by NTU IIC, The Financial Coconut Podcast, Money FM 89.3 and Internationally in Myanmar. He is also a part of the SMU BFI (Business Families Institute) network.

Chris is also a practitioner of Transcendental Meditation. 

“Meditation, more than any other factor, has been the reason for what success I’ve had. Meditation leads to openness, to freedom, where a kind of intuition just comes through. You could step back and put things in perspective” – Ray Dalio on Transcendental Meditation, founder of the largest hedge fund in the world with $140 Billion under management.

vim or value investing mentorship

Attention business owners and senior professionals age 30-50: Want to align your lifestyle with your values and goals? Schedule a call with Chris to learn about VIM. This exclusive educational mentorship program will deepen your understanding and application of value investing and give you personalized learning and support from an experienced mentor. Apply now for the chance to join VIM, but don’t wait – admission is subject to Chris’s approval, and available spots are limited.

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