No, I don't know of any connection between Warren Buffet and Washington recently (other than the reported relationship between him and Katharine Graham in Monday’s Washington Post),
but I read so you don't have to:
Subtitle: Mastering the Power of the Focus Investment Strategy (John Wiley and Sons)
From these pages and this old (1999) book, I offer a few tips garnered which may prove helpful, especially with the erratic market.
For definitions, try investorwords.com and BusinessDictionary, and I love Google's finance pages.
* Index funds are usually better than mutual funds.
* Focus on return on equity rather than earnings per share.
* Invest in no more than 15 companies. (Buffet prefers 10).
* Buy low!
*Keep your turnover rate between 10 and 20%, and Buffet thinks lower is better. (Do I have to define turnover rate? Okay: from Investorwords.com: For a mutual fund, the number of times per year that an average dollar of assets is reinvested. )
*Hold for a minimum of five years. (Holding reduces transaction costs and raises after-tax returns. Also, when you hold for several years, say, 10, you reduce your risk.)
*Hold on during bumps. ("It's going to be a rocky ride" said Ms. D.)
*Hold forever if the company is performing above-average, to wit, do not sell superior companies.
(You often hear about the "beta factor" which is a degree of correlation between the stock market as a whole and an individual stock. If a company's stock has a beta of 1, it means the stock is rising and falling exactly with the market. If a company's beta is 2, it is rising and falling twice as fast as the market, meaning it is riskier than the market, and the inverse is true: A beta less than 1 means the stock is "safer" with less risk than the market and therefore, generally performing below the market.)
*Share price is not as important as a company's intrinsic value since an investor may be able to purchase a company's stock at bargain rates. Study stocks selling lower than their intrinsic values. (How do you figure intrinsic values?)
*Compare annual reports of a company you like with similar companies. Compare performance with forecasts. Look for low ratio of price to book value, low price/earnings ratio or a high dividend yield. The value of any investment is the present value of future cash streams.
For additional reading the author recommends Philip Fisher's Common Stocks and Uncommon Profits: Paths To Wealth Through Common Stocks, now considered a classic and re-issued in 2007 by Wiley with a foreword by Fisher's son, Kenneth Fisher.
Buffet respects John Maynard Keynes.
Note to self: Check out the Sequoia Fund.
No comments:
Post a Comment