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1 THE WARREN BUFFET WAY Investment Strategies of the World’s Greatest Investor By Robert G Hagstrom Presented by: Roziana Mohammad (PBS 1331432)

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THE WARREN BUFFET WAYInvestment Strategies of the

World’s Greatest Investor

By Robert G Hagstrom

Presented by: Roziana Mohammad(PBS 1331432)

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86 years old An investment guru No. 4 richest man in 2014 one of the

richest Most successful stock market investors

for the past 30 years CEO of Berkshire Hathaway – investing

in stocks and buying companies Mentor : Benjamin Graham (Father of value investing and Dean Wall Street Theory : “Mr Market” and “Margin of

Safety” A mix approach investment from Ben

Graham and Philip Fisher

Source : Forbes 2014

WARREN BUFFET – “THE ORACLE OF OMAHA”

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• Only buy stocks at a price that is well below an intrinsic value of the business – determined by assets, earnings, dividends and future values

• Provides high-return opportunities but also gives some protection on the downside if things don't work out as planned

Principle No. 1: Always Invest With a Margin of Safety

Principle No. 2: Mr MARKET – Expect Volatily and Profit from It

Mr Market as a business partner who offers to buy or sell you his interest daily. Price could be high or could

below and an investor you are free to buy his interest, sell out to him or ignore if you don’t like the price. He will

always come back tomorrow with a different offer. Have freedom to say no and think rationally.

BENJAMIN GRAHAM – FATHER OF VALUE INVESTING

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Type of Investors

Defensive

Aggressive/Enterprise Investors

Based on willingness and ability to bear on the task

• Eg. Doctor – not able to spend too much time to the process

• Focus on shares of companies that have strong financial background and long term profitable companies

• Eg. a sharp young executive interested in finance)

• Expand their universe substantially, but purchases should be attractively priced as established by intelligent analysis

Understanding the business and

economic conditions

Portfolio diversification

• Highly believer in defensive investing and protecting a portfolio against errors in judgment

• Recommends purchase of a minimum of 10 different issues and a maximum of 30. – Low risk, good return, buy and hold for long term

• Stock holdings should be reviewed at least annually, focus on dividend returns and the operating results of the company, and ignore share price fluctuations

• Take advantage on the market fluctuation on the upside – stocks overvalued

• Have some understanding of business and economic conditions and will form some opinion concerning the prospects of a firm or industry

• Use Historical data – historical rates provide a starting point, not representing future but it gives some indicatives of future rates

• Use the proper historical rate requires considerable investment judgment• Make decision based on quantitative than qualitative factors

BENJAMIN GRAHAM INVESTMENT PRINCIPLES

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“I am 85% of Benjamin Graham”

“Risk comes from not knowing what you're doing”

-Warren Buffet-

Combo investment approach of Ben Graham and Philip Fisher

Rule No. 1: Never Lose Money, Rule No. 2 : Never Forget Rule No. 1

Be a sensible investor..Don’t be frivolousDon’t gambleDon’t go into an investment with a cavalier attitudeBe informed on the companies’ operating results not by the short term fluctuationsBe patient and go for the value of businessDo your homework – if you know more about a company, why give more attention on what market says?Buy shares because you believe in the company – intend owning it for number of yearsNEVER FOLLOW THE DAY TO DAY FLUCTUATIONS OF THE STOCK MARKETONLY check the market for anyone who sells a good business at a GREAT PRICE!

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Don’t try and analyse or worry about the general economy

If the business does well, the stock eventually follows….

Impossible to predict the stock on daily basisImpossible to forecast what the economy will do in the next 5 yearsDon’t assume that that the direction comes from the economy predictedFind a business that exhibit favourable for LONG TERM prospects – more VALUABLEDoes the company :- Have a CONSISTENT operating profit? Have a DOMINANT franchise? Is the business generating HIGH and SUSTAINABLE profit margins?

A business that has ability to PROFIT in ANY economic environment is very VALUABLE!

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It is better to buy a wonderful company at a fair price than a fair company at a wonderful price

Buy a business NOT a stock

Buy QUALITY stocks and look for a company with.. Business operations that are UNDERSTOOD FAVOURABLE long term business prospects Operated by HONEST and COMPETENT people Available at an ATTRACTIVE price

Assess companies based on :-Business tennets – Simple and understandable business? Operating History? Profitable/Good Prospects?Management tennets – Rational management? Honest with its shareholders?Financial tennets – Return on equity not EPS, calculate owner earnings, search companies with high profit margins, for every $1 of retained earnings, has the company created at least $1 worth of extra value?Market tennets – Value of business? Right company at the right price – with MoS against unknown risk?

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Act like a owner of the business and NOT the owner of a piece of paper

Manage a portfolio of businesses

UNDERSTAND the company’s operating fundamentalsDIVERSIFICATION only required when the investor does not know what they are doing.NOT MANY business owners are COMFORTABLE AND EXPERIENCED to operate a number of companies portfolio at the same time.Only BUY shares at the companies which are thoroughly UNDERSTOOD

“ Perfect timing is where, we simply attempt to be fearful when others are greedy and to be greedy only

when others are fearful”

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In the nutshell..

Buffet’s investment strategy is to locate wonderful companies with long term value and fairly priced

stock. He understands the business that he is comfortable with, and acts like a business owner

rather that a stock market speculator. He champions the value investment strategy, maintains a longer

perspective at all times, and never loses sight of the underlying value of a business.

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