Strategic Direction: How to Pick Stocks Like Warren Buffett

Strategic Direction: How to Pick Stocks Like Warren Buffett

Highlights by David Willden

In his book How to Pick Stocks Like Warren Buffett, Timothy Vick  provides easy to understand lessons on the “value investing” model that Buffett uses. The net results of Warren’s investments has placed him by Forbes as the richest or one of the richest billionaires (depending on the year) in the world. The author provides engaging lessons from Warren.

Lessons

Importance of Education

  • As a child, Warren started reading books about investing
  • When his was 11 years old, he began trading stocks
  • While in college, Warren was strongly influenced by Benjamin Graham – the author of The Intelligent Investor

Determine the Intrinsic Value of a Firm Buffett trusts that overtime the price of a asset will find its intrinsic value, or in other words, there is a  perfect correlation between price and valueThe key is to understand the intrinsic value of a firm before investing in their stocks The intrinsic value isn’t easy to calculate.  It is the combined tangible and intangible value of the company.    This value may not be the same as the market valueThere are different ways used to determine a company’s intrinsic value

How To Calculate The Intrinsic Value of a Stock

How to Calculate Stock Price by Using the Intrinsic Value Method    Wouldn’t it be great if, by plugging some numbers into a formula, you could determine if you should buy a stock or not? Unfortunately it’s not quite that easy. However, there are a number of calculations that you can use to estimate the approximate value of a stock. One popular method is to calculate a stock’s “intrinsic value”. Using this type of valuation method, you can calculate a stock’s price based on the expected value of future earnings per share and dividends. When to Calculate Stock Price Using The Intrinsic Value Method Once you’ve done your research and decided that you like a company and you think that the company is positioned favorably for your investment timeframe, it’s time to decide if you should buy the stock now or if you should wait a little while for a better price. Warren Buffett says: “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. In other words, decide that you like the company first, and then figure out what price to pay for its stock.

Learn How To Research Stocks Like the Pros. 

ia Smartstockresearch


Buy Low

  • Superior returns can be gained by buying undervalued securities
  • Warren focused on buying significant stocks in an undervalued companies and then work to position and sell the company for more than what he paid

Look for Firms with Simple Business Models

• Buffett seeks profitable businesses with simple business models

Determine the Competitive Position of a Firm

• Being in a relatively unique business with a good position in its market

Don’t Follow the Crowd 

The author states that you “are better off if you ignore Wall Street performance predictions…”   To be a successful pay attention to the value of an asset, which is based on its earnings.

Leverage Your Money 

  • Warren purchased significant positions in cash-generating firms
  • He increased cash flow and used the proceeds to invest in stocks and bonds
  • In particular, he invested in insurance companies

Strategic Direction: How to Pick Stocks Like Warren Buffett

Strategic Direction: How to Pick Stocks Like Warren Buffett