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Despite making some huge gains against other currencies, Bitcoin’s value has fallen recently. But I’m forgetting the cryptocurrency and aiming to make decent gains using the techniques perfected by billionaire US investor Warren Buffett.
A business-like perspective
Buffett made his initial fortune by investing in stocks. And in later years his market-listed company Berkshire Hathaway started owning entire businesses. Although even now he still invests in plenty of stocks alongside those fully-owned enterprises.
And the reason for that is he sees little difference between owning a business outright and owning some of a company’s shares. If he owns stocks, he considers himself to be a part owner of the business. And tends to hold on with the same tenacity he would if he owned the entire company.
That long-term approach to investing is one of the keys to his considerable success. He’s not trading stocks by jumping in and out. He’s making his careful selections and then holding through thick and thin as the growth potential in a business unfolds.
However, I admit that such a strategy can be difficult at times. Imagine buying stocks only to see them plunge in the coronavirus crisis. Then to watch them rebound to new heights before plunging once more when the war in Ukraine started.
Buffett once said investors should learn to accept their holdings falling by as much as 50% without becoming “panic-stricken“. And I’m trying. I really am. But it’s tough.
Careful selection
Another piece of Buffett advice could help me. He said we should be comfortable buying and holding stocks on the assumption the stock market would close for five years. And that could be key to holding tight through the ups and downs. Not that I expect the stock market to close. But I could pretend it has and not look at my portfolio. I’m sure that would help — if I could only do it!
But with all that kind of advice, the implication is to be very careful about the stocks chosen in the first place. And I’d approach the challenge by aiming to appraise a business as if buying the entire enterprise. In that way I’d be copying Buffett’s business-minded approach to investing.
I reckon Buffett looks for a quality business with a strong competitive advantage in its markets. And he wants a long runway of multi-year growth ahead. He needs that to make sense of his long-term holding period. And that’s because the aim of holding for a long while is that a business can compound the growth in its earnings while he owns it. Buffett is really buying and owning compounding machines.
Finally, he seeks a fair valuation. And that’s because over-paying for a business can turn a great company into a poor investment if the valuation contracts while he’s holding shares.
All shares come with risks as well as positive potential. But I’m hoping following Buffett’s methods can help me compound my share portfolio towards the value of a million.
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