If you want to be an outstanding investor, there's no better person to emulate than Warren Buffett.
The "Oracle of Omaha" has earned impressive returns on his money for more than six decades. Buffett, chairman and CEO of conglomerate Berkshire Hathaway, became one of the richest people in the world through his skills at allocating capital.
Emmy award-winning anchor Liz Claman of Fox Business Network has interviewed Buffett numerous times. She shares her insights into the five qualities she thinks investors can learn from Buffett:
1. Exercise Discipline
Set your rules of investing and then stick to them like Krazy Glue. Buffett has his own personal investment rules: For example, he never, ever overpays for a stock. If possible, he underpays. When Buffett reports his own earnings for Berkshire Hathaway, he goes by book value, which takes into account both assets AND liabilities. He often will assess a company's value through those same metrics, figures out the fair price for it, commits it to memory and then never pays a dollar over that price. He's been watching Heinz since the '80's, but only recently did it hit the price he'd be willing to pay for it. He'll wait forever if necessary.
2. Pick the Winner
He only buys 'best in class.' He's often said people reach for Coke first, not Pepsi. So he bought Coke. He's the largest single shareholder of the company and proud of it. He bought into Wrigley's. He owns American Express. He wants those companies whose products just can't be beat.
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3. Be Robotic About Investments
Don't get emotional about investments. In recent years, Buffett started to sell some Johnson & Johnson stock. I said to him, "But I thought you buy a stock and never sell it, and that you really liked Johnson & Johnson." His quick response: "Yes, but I like other things better right now—and I needed the money to buy them."
4. Steer Clear of the Herd
If you follow the herd, there's a good chance you'll get trampled when it shifts direction. Buffett told me once that he moved back to Omaha from New York not only because Nebraska was home but because, "every day in New York, I'd get 19 investment tips whispered in my ear before noon, and none of them were any good." He does his own research, his own reading and tunes out the herd. That puts him in front of the pack, like when he made a fortune by investing in POSCO, the South Korean steel giant, well before that company was on many Americans' portfolio radars. When the masses started to pile in, he was already out.
5. Admit Your Mistakes ... Then Don't Make Them Again
There isn't a company in the world besides Berkshire Hathaway where in the first line of the annual shareholder report, the head of the company admits the exact mistakes the company made. Most publicly traded companies either try to forget their mistakes or hide them on the last page of the report, while Buffett puts it up front and in plain-spoken English. One year he flat-out stated, "I did some pretty dumb things." Then he explained what a mistake it was to buy Conoco Phillips when oil was trading above $145 a barrel. Be intellectually honest, even if it's uncomfortable.
To hear more from Buffett and Claman, tune in to their interview at the annual Berkshire Hathaway shareholder meeting on Monday, May 6th, which will be broadcast nationally and streamed online at Fox Business Network.
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