Warren Buffett invests by using both value investing and value trading, but with a lot more emphasis on value investing methods. It’s a rarity that Buffett trades his stocks. There has to be specific reasons why he would sell stock that he owns. We’ll get into those reasons later.
What is value investing?
The general goal of value investing is to accumulate quality assets that will continue to put money into “your pocket”.
Buffett Value Investing
Buffett uses value investing as his main investing strategy and does it very well. Here’s a general overview of what he does when he invests.
1) He come’s across a company, say it’s See’s Candy (which he really owns).
He looks at their financial information and determine what he thinks the company is worth. After analyzing the company, he concludes the company is worth $40 a share.
He then looks for how much he can currently buy the shares for on the stock market (how much the company’s stock is trading for currently in the market). He notices that See’s Candy is only trading for $30 a share which is $10 less of what he thinks the company is worth per share.
He sees that this is a great deal and that he can purchase (invest in) the company at a discounted rate.
While owning the company he’ll continue to get paid for as long as he owns the asset. He usually holds the asset for a very long time because he knows that the company will continue to put money into his pocket.
In a nutshell that is what Warren Buffett does when he value invests. Of course this is an over simplified explanation of it and learning how to invest successfully is more complex.
Stay tuned as we’ll explain more of the how-to’s of Buffett value investing!