Warren Buffett is legendary for his ability to pick great stocks, and many investors have tried to replicate his success. Of course, if it was so easy, everyone would be a billionaire like Buffett, but an article in Yahoo! Finance details a few of the secrets to Buffet’s success.
- “Buy What You Know.” Buffett is well known for having favorite products that he actually uses in addition to owning, such as Coca-Cola and See’s Candies. But it’s not enough to enjoy a product if you want to buy it—you need to research the company thoroughly, including reading through their Annual Reports the way Buffett did. Look around your life: there may be a product that you use that others may overlook that could turn out to be a great value stock.
- “Buy Stocks On Sale.” That may sound easy, but the timing can be tricky to get right. Buffett has been criticized for not buying the dip in 2020 at the start of the pandemic, but when stocks dropped again this year, Buffett went on a shopping spree with all the cash he’s been stockpiling over the last several years. He looks for cheap, brand-name companies that have solid earnings growth and good cash flows, and that’s something any investor can replicate by looking at standard fundamentals like price/earnings, PEG, or price-to-sales ratios.
- “Learn To Pivot.” Although Buffett’s famous quip is “our favorite holding period is forever,” he actually knows when to change course if something isn’t working out. Berkshire held a large position in IBM for 7 years, but in 2018, when the shares fell as low as $125, Buffett exited the position and bought Apple instead, which at the time was a value stock. It’s now one of Berkshire’s biggest holdings. Investing mistakes are inevitable, but knowing how to pivot quickly is the key to correcting them.
Lastly, the article details one of Buffett’s key skills that’s imperative to successful investing: discipline. Buffett knows how to be patient and wait out a stock until it’s at an attractive price. He also always keeps a “margin of safety,” in order to be prepared for downturns, corrections, and bear markets. And even if you miss out on a buying opportunity, as Buffett did in 2020, there is always another chance coming, just as it did for Buffett this year.