Wednesday, February 4, 2009

Delicious Buffett

Stock market guru, Warren Buffett, made headlines when he bought substantial stakes in technology and services giant General Electric Co (GE) and financial heavyweight Goldman Sachs Group.

Just when everyone else was pulling out their investments from Wall Street, Buffett stepped in to inject some US$8bil in these two companies via his investment company Berkshire Hathaway Inc.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well,” he once said.

The five main criteria Buffett uses for stock selection are earnings versus growth, high return on equity, minimal debts, strength of management and simple business model.

Buffett is an astute long-term investor and has always investigated the underlying fundamentals of a company, rather than market sentiment. He has always determined the intrinsic value of a business and paid a good price for it. He believes price is what you pay, value is what you get.

Being prudent, Buffett is said to never invest in any business that he could not understand, a principle that paid off when he escaped the dotcom market crash. His investment principle is simple— always analyse a company’s annual reports to check its fundamentals and know what you are investing in.

Should we emulate Buffett? Many investors would say yes if we are buying for long-term. Investors should generally hold on to three principles — be long-term oriented, only buy what we can afford and be focused in what we buy.

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