I would venture to say that every investor has heard of Warren Buffett. Being one of the richest people in the world attracts a lot of attention. Since his wealth was created through investing, many investors do whatever they can to emulate his style.
You may think that the key to Warren Buffett’s success is buying and holding stocks while they appreciate in value. He has mastered this process so well that average investors think it is a simple process of buying a stock and then holding it for years until, BOOM one day you’re a billionaire!
If only it were that easy, then you wouldn’t need this blog. While the buy and hold strategy has been a part of his success, people often miss the bigger picture. The real key to Buffett’s success is knowing which companies to buy in the first place and this can be an unrelenting process.
If you want to be a successful investor, it takes time and judging by the results of a Charles Schwab survey most people don’t take enough time researching options before making an investing decision. I think the idea of simply picking stocks stems from our instant gratification society and the fact that there are so many stock pickers on TV now that it seems like you can just listen to one of them and you’ll be fine.
But have you ever stopped to think how often those picks are wrong? Sure, it’s easy to say this stock is a buy or it’s time to sell that one, but do we ever see the follow up. A 2013 study actually looked at analyst’s recommendations on the Dow and found they were wrong almost half the time. So basically you could flip a coin for your recommendations and be about as accurate as a Wall Street analyst.[perfectpullquote align=”right” cite=”” link=”” color=”” class=”pullquote-red” size=””]The real key to Buffett’s success is knowing which companies to buy in the first place and this can be an unrelenting process[/perfectpullquote]
That’s why performing detailed research is key before making any investment and its why Warren Buffett does it. Sure, you can start with analyst recommendations, but so is everyone else, and when it comes to investing you want an edge over everyone else.
So if you really want to learn and emulate Buffett, start reading. Buffett is famous for spending hours a day reading, sometimes reading as much as 1,000 pages a day! All of this reading helps him build a vast base of knowledge on the companies and industries he is analyzing. He then uses this knowledge to his advantage when looking for undervalued companies. Because he is always prepared, Buffet has claimed this has helped him make “less impulse decisions than most people in business”. This is Buffett’s true genius, taking the time to analyze and learn everything he can about a company and industry before taking action.
Now you might be saying that you don’t have hours a day to spend reading or performing research like Buffett does, but that’s ok. The key is to understand that his success isn’t just buying and holding stocks, it’s in the all countless hours of behind the scenes research that went into the decision to buy in the first place. Knowledge is power and even reading a little bit each day (and it doesn’t even have to be finance related) will help build your knowledge base and give you perspectives you may not have had otherwise. Personally, I read during lunch. Instead of mindlessly surfing the internet, I use that time to expand my knowledge base.
When it comes to investing, be like Buffett and do some research before buying or selling a stock. You may think it sounds like a lot of work, but no one ever said investing was easy. Putting in a little extra work will make you a smarter investor, just like Warren Buffett, and if there’s an investor I would like to be like it’s him.
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