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5 Powerful Steps To Invest in Stocks Like Billionaire Warren Buffet

Updated on October 5, 2014

Well come to another series of my Warren Buffet stock market hubs.

The objective of this hub is to define value investing in the context of Warren Buffet, Benjamin Graham and David Dodd.

I chose these three for the fact that I am practitioner of Value Investing techniques taught my Benjamin Graham and David Dodd and later Warren Buffet.

Value investing is an investment paradigm that derives from the ideas on investment that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis that is considered by many value investors as the bible of value investing.

Although value investing has taken many forms since its inception, it generally involves buying securities that appear under priced by some form of fundamental analysis.

Warren Buffet took the value investing principles thought by Graham and David Dodd and became a billionaire value investor.

The value investing framework exists to ensure that the price you pay is less than the value you get. It’s really that simple. Unfortunately, it’s not always easy to implement and takes rigorous fundamental analysis.

At its roots, value investing is simply a framework for investing that involves buying stocks for less than their underlying value. As Warren Buffet says,

“Price is what you pay, value is what you get.”

Billionaire Warren Buffet
Billionaire Warren Buffet

2. Analyse the selected company

One he finds a company with low price to earning ratio and strong growth and has good margin of safety, he gets down to thoroughly analyzing the whole company. Buffet pays special attention to return on equity, return on capital and profit margins.


3. Studies qualitative features of the business

Once Buffet is satisfied with numbers, he proceeds to study in detail all the qualitative features of the business. He looks at the product offered by as well as the type of people who manage the business.

4. Buys stock

If you remember one previous that I did about Warren Buffets 4 Timeless Rules of Investing in Stock Market, you will remember that the stock selected must meet all the four rules. All means all four rules. If three are met, Buffet will NEVER buy the stock.

5. Hold on the stock for capital growth

Buffet is a value investor. He thoroughly analyses a business as a whole and then buys and holds for long. He then continues to assess the health of the company has time goes by. At the end, he wins big as his holdings grow in value.

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Summary

We have covered value investing in the context of billionaire Warren Buffet. The 5 steps covered include;

1. Selecting stock

2. Analyzing the stock

3. Assessing qualitative features of the business

4. Buying the stock

5. Holding the stock for capital growth

Thanks for reading and I hope you learnt something useful. Do drop your comment below if you wish to.



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© 2014 Ian D Hetri

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