How to INVEST like WARREN BUFFETT | Summary and Q&A

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April 30, 2016
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Financial Education
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How to INVEST like WARREN BUFFETT

TL;DR

Warren Buffett's investment strategy focuses on staying in his circle of competence, thinking about the business rather than the stock price, and looking for companies with low PE ratios, strong balance sheets, and trustworthy management.

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Questions & Answers

Q: What does it mean to stay in your circle of competence when it comes to investing?

Staying in your circle of competence means investing in industries or businesses that you have a deep understanding of, allowing you to make informed decisions based on your knowledge and expertise.

Q: Why does Warren Buffett emphasize focusing on the business rather than the stock price?

Buffett believes that successful investing requires understanding the company's long-term prospects, profitability, and ability to generate cash flow, rather than being swayed by short-term fluctuations in the stock price.

Q: How does Warren Buffett determine if a company has a strong balance sheet?

Buffett looks at the ratio of short-term assets to short-term liabilities, as well as long-term assets to long-term liabilities. He prefers companies with at least a 2:1 ratio, meaning they have at least $2 in assets for every $1 in liabilities.

Q: Why does Warren Buffett prioritize trustworthy management?

Buffett believes that a trustworthy management team is crucial as they make important decisions that can impact the success of the company. He looks for management that he can trust and believes will act in the best interest of the company and its shareholders.

Summary & Key Takeaways

  • Warren Buffett emphasizes the importance of staying in one's circle of competence and investing in industries that one fully understands.

  • He advises investors to focus on the fundamentals of the business rather than getting influenced by daily fluctuations in the stock price.

  • Buffett looks for companies with low PE ratios, indicating that they are undervalued compared to the rest of the market.

  • He considers a strong balance sheet with more assets than liabilities as crucial, as well as a management team that is trustworthy and capable.

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