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Warren Buffett, Chairman, CEO and largest shareholder of Berkshire Hathaway. Image: REUTERS/Lucas Jackson
Warren Buffett, Chairman, CEO and largest shareholder of Berkshire Hathaway. Image: REUTERS/Lucas Jackson

5 Warren Buffett Investing Strategies Defining His Success

Warren Buffett, Chairman, CEO and largest shareholder of Berkshire Hathaway. Image: REUTERS/Lucas Jackson

Billionaire Warren Buffett is known for his evolving laser focused investment strategies. Though the Berkshire Hathaway CEO knows how to spot the trends but more often sets them.

Legendary Investing Skills

Anyone who invests in the stock market and who trades will not only know about Warren Buffett but will also pay attention to pretty much everything he does. The story of how Buffett made himself and Berkshire Hathaway into unprecedented success stories would convince even the most shrewd investors to listen in.

At nearly 88 years old, Buffett is revered just as much now for his unparalleled investment instincts and ideas as he – or anyone else – ever has been. He’s still discovering places to invest several decades after getting started. That said, the foundation approach he had right at the beginning – essentially, seeking out businesses selling for less than their worth – has remained the same.

Right When He’s Wrong

Buffett has made investment decisions ranging from conventional to baffling. For example, Buffett remained resistant to investing in tech companies for many years. His reasoning was that he didn’t feel capable of choosing the ones that would be successful over time. In the 1990s, he faced extensive criticism for missing out on the tech stock boom. However, those criticisms stopped when the tech bubble burst.

“Even with hindsight, it’s a little hard to figure out, you know, who was going to make all the money,” said Buffett in 2007 at the annual Berkshire Hathaway meeting. “There’s just games that are too tough.”

In Buffett’s own words, he has three boxes on his desk: in, out, and too hard. The “too hard” box held all the tech companies in which he’d put off investing until 2011, when he invested in IBM.

Today, Berkshire Hathaway is a major Apple shareholder and Buffett has made it clear that he intends to continue purchasing the company’s shares. As of the end of June, the company’s share of Apple was worth over $50 billion. He has made mistakes along the way, but they’ve been easy to overlook as his other decisions maintain – and grow – his success overall.

How has he done it? There isn’t a set formula, but he does have certain investing strategies he has maintained throughout the years.

Strategy 1 – Simplicity is Key

It’s easy to become overwhelmed and lost in highly complex strategy. However, Buffett has always functioned with the perspective that investments need to be based on knowledge and data that can be whittled down to a point that is comfortably and logically actionable. It needs to be made simple enough to comprehend all its ins and outs. Consider the way Buffett held back on tech. It was because he found it to be too complex to be able to decide on future successes or failures among individual companies. He held off until he could simplify it to a usable level.

Strategy 2 – Begin Investing Early

The time to begin investing is now. The younger you are, the better. This gives you the chance to start small and build your skills, knowledge, and comfort level. This also means that by the time you’ve built a solid skill set and personal investing strategy, you’ll still be young enough to have time to use it in a meaningful way for many years.

Strategy 3 – Avoid Timing the Market

Many investors attempt to time the markets. Warren Buffett does not. He times the flow of options volatility instead, to obtain far better and more usable information. When it comes to the stock market, short- or moderate-term indicators are more usable. They can help to gain an improved understanding, with tape action as the final defining component.

Strategy 4 – Don’t Let Dips Scare You

Among the top strategies Buffett has stuck to over the years is not to be afraid to purchase dips – even big ones. In fact, buying targeted big dips can lead to significant gains. This isn’t the case with all dips. It’s important to keep in mind that Buffett never does anything blindly. Instead, understand the decision you’re making and steel yourself against the fear media headlines have a tendency to promote. Think logically and look at the dip in terms of the opportunity it may have to offer. Compare the dip to your other measures and watch the tape.

Strategy 5 – Do “Not Lose Money”

If you just rolled your eyes, then you missed the point. Buffett did share this piece of rather obvious-sounding advice for investors. However, he didn’t mean that you should never lose any money at all while investing in the stock market. Money is lost. It’s inevitable. The key is not to lose too much money. Be strategic. Don’t put all your eggs in one basket. Don’t set yourself up so one investment can sink everything you have. Hedge strategically so you’ll consistently maintain control over your risk level. Never trick yourself into thinking you’re the only one with the right plan. Combining those two concepts can help to keep yourself safe from losing your money in a devastating way.

Buffett Keeps Evolving

Yes, Warren Buffett may have his tips, tricks, strategies and concepts to which he has adhered throughout his entire investing life, but that doesn’t mean he hasn’t changed. Remaining flexible to the extent that you’re willing to learn, grow, adapt, and evolve makes certain that you keep up with the current times while avoiding the repetition of your past mistakes.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.