It has been another busy year for investor Warren Buffett.
At the age of 92, the Oracle of Omaha shows no sign of slowing down.
In 2023, he bought a large slice of Occidental Petroleum – the Houston-based outfit exploring in both the United States and the Middle East.
Big in Japan
Characteristically, Buffett took advantage of a pullback in prices to boost Berkshire Hathaway’s stake in the oil giant to more than 20%.
The investing legend also went on his travels to find cheap stock. He journeyed to Japan where he found buying opportunities recently in five Japanese trading houses.
What is his secret to successful investment? Here are his three golden, guiding, principles, courtesy of CNBC.
PRINCIPLE ONE
Don’t look at a stock like it is a ticker symbol with a price that goes up and down on a chart. It’s a slice of a company’s profits far into the future, and that’s how they need to be evaluated.
“Charlie (Munger, Buffett’s business partner) and I haven’t the faintest idea where the stock market is going to go next week, next month, or next year. We never talk about it. … “ What we see when we look at the stock market is thousands and thousands and thousands of companies priced every day, and we ignore 99.9 percent of what we see … and then every now and then we see something that looks like it’s attractively priced to us, as a business. Forget about the word ‘stock.’
PRINCIPLE TWO
The stock market is there to serve you, not instruct you.
Many nonprofessional investors become concerned when stock prices fall. They think the market is telling them they made a mistake. Some may even be so shaken that they sell stocks at lower prices.
Buffett takes the opposite view. If he buys a stock because he thinks the company will be a long-term winner, he doesn’t let the market convince him otherwise.
“My enthusiasm for stocks is in direct proportion to how far they go down. I like it when things I like go down in price. … “Am I better off if I have to pay high prices or low prices? So, it’s not bad news for us when stocks go down at all. Now, you know, it’s bad news for us when something goes wrong with a company.”
PRINCIPLE THREE
Maintain a margin of safety
“We try not to do anything difficult. …“This is not like Olympic diving. In Olympic diving, they have a degree of difficulty factor. And if you can do some very difficult dive, the payoff is greater if you do it well than if you do some very simple dive. “That’s not true in investments. You get paid just as well for the most simple dive, as long as you execute it all right. And there’s no reason to try those three-and-a-halfs when you get paid just as well for just diving off the side of the pool and going in cleanly.”
