CNBC analyzed the minutes of the Berkshire Hathaway shareholders’ meeting to find out why Warren Buffett could be an excellent investor. It is already known, but it seems to be simple and clear.
Below are investment advice from Warren Buffett at the Berkshire Hathaway Annual Meeting.
Circle of competence
“Each person understands each business. The important thing is to know whether you can understand the business and when you work in it. I call this a circle of competence.”
Buffett emphasized the importance of finding companies that belong to his field of specialization in order to avoid big investment mistakes.
Buffett says this process is “to judge the future economic capability of the business”. Buffett also said that if a company can not be sure that it is within its capabilities, the company will not be in your range.
Piece of a business
“The stock market is for you to serve, not for teaching you. I read Benjamin Graham’s book The Intelligent Investor when I was at the University of Nebraska in 1949, and my view of investment has completely changed.”
“Once you have decided to buy some stocks, you should not worry about charts shaking up and down, or people telling you that they need to buy stocks because of dividends or stock split. Instead, you have to buying a business.”
Buffett himself admitted that he was not a great investor and that he had read a lot of investment books in his teenage days but could not make money with stocks. But Buffett changed everything after reading Benjamin Graham’s book The Intelligent Investor.
The Intelligent Investor saw buying stocks as part of the business and emphasized avoiding losing attention to stock price fluctuations, and Buffett said he achieved ultimate success thanks to the basic concepts learned in this book.
Margin of Safety
“On the margin of safety, which means, don’t try and drive a 9,800-pound truck over a bridge that says it’s, you know, capacity: 10,000 pounds. But go down the road a little bit and find one that says, capacity: 15,000 pounds.”
When analyzing potential investment targets, Buffett wants to buy at a price well below his or her measured value. In other words, the difference between the measured value and the buy value is the Margin of Safety, and by setting the Margin of Safety, you can limit the amount of loss if there is an error in business analysis or assumption.
“The margin of safety concept boils down to getting more value than you’re paying”