How to follow in the footsteps of Warren Buffett

Julie Brownlee, Fsp Invest, 21 Oct. 2015

Tags: warren buffett, investment strategy, warren buffett investment strategy, investing in shares, value investing, what is value investing,

You’ve no doubt heard of Warren Buffett. Over his life, he’s amassed a multibillion dollar fortune and is the second richest person in the US.

Buffett made his billions from investing.

So what’s his secret?

Let’s take a closer look…

Warren Buffett followed in the footsteps of Benjamin Graham

Benjamin Graham introduced the concept of value investing. Warren Buffett was his protégé.

Value investing involves digging deep into the available fundamental data to find the best undervalued stocks to invest in.

Both Graham and Buffett used different ways to look for these great companies trading at discount prices.

One such way was looking for a margin of safety. This involves finding stocks that trade below their intrinsic value, giving you an opportunity to buy a stock that should see its price rise to reflect its true worth in the future.

One of Graham’s techniques, called the Graham’s number, is another way to put value investing to work.

This involves taking away all of a company’s current liabilities from its current assets and dividing this number by the number of shares outstanding. If Graham found a stock trading at 66% of the Graham’s number, this showed a stock was extremely undervalued.

Over time, Buffett adapted these techniques and started to focus solely on balance sheet and income statement figures. Using this data along with the presence of a competitive advantage and strength in management, Buffett would uncover investment opportunities.

What to expect from value investing

If you want to put value investing to work, you need to be prepared to do your homework. It involves a lot of research and number crunching.

And if you uncover undervalued stocks and buy them, you need to be prepared to wait until the market recognises the true value of the stock. Then you can pocket your profits.

So there you have it. How to follow in the footsteps of Warren Buffett.

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