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Wednesday, March 11, 2009

The Warren Buffet Way {Part 5 of 6 Parts}

17. Stay in your Competency
When should choose to invest, what the business is?? Waren Buffett is guided by what he called "Circle Competence", where the circle of competence only consist of industry stock, where he feels comfortable to be involved.
Buffett does not invest in the stock high-technology shares. Why? because the stock-share interest is located outside his competence.
According to him, "Develop a regional expertise, do operation in the area, and do not blame yourself for losing the opportunity to appear outside the region." Since 1982, Buffet to include a list of "business interest", such as:
- Capitalization of the market
- Businesses that show a consistent ability to generate income in
- Business of the ROE is good, with the Debt Equity Ratio is low
- Business with strong management
- Business is simple, not hi tech
- Share price is good and interesting

18. Ignore stock market prediction
Buffett said that, the short forecast period on a stock price or bond is not useful. Prediction that it gives you more information about fortuneteller prediction, and not the information future.
Buffett prefers focus on business performance, and not disrupted by a larger trend that does not believe, he might be predicted accurately. According to him, the forecast is only a dim assessment. Why? Due in part to create the illusion prediction accuracy, because it seems to be based on the data.
Bufett advice here is:
- Eliminate any involvement in the prognosis of your investment decisions
- Divert the time you will used to listen prediction with analyzing the track record of business.
- Develop investment strategies that are not on the whole movement that have relation with market.
- The flare of a stock market, the more likely people take advantage of the forecast, but at that time have also forecast a small chance for the right.

Mr. Market is something that many in the role and dominate the world shares. He is a psychological problem that affects the price he set.

If he is happy, it only see things in a good course of business and set a high price on the value of, and he felt afraid that his stocks with your purchase price is too cheap. Here he hold share-holding to its price and hope the price continues to rise (if the price suddenly even his fall, he will get drunk ...).
Conversely, if he is sad, he did not see anything except the business in distress, in this time he set up the cheap price stock and hope you buy it.
Mr.Market That is, he will come every day exchanges. Therefore, according to Buffet Aka Mr.Market should know the situation at the time, and DO NOT ONCE TIME WORK UNDER INFLUENCE. Badly all people can be infectious and can be intoxicating over gladness. This is the cause panic selling and panic buying.
After Mr.Market understand, you must also enter a margin of safety in the framework of your thinking. Margin of Safety is the condition of stock prices that are substantially lower than the value of the business. When assessing margin of safety, use the concept of intrinsic value as a starting point. Namely the measurement of the values that are really valid, to determine the real value of a stock price.

This is advice from Buffett's. He often utilize emotions that spread easily with this act contrary to the sentiment that is growing. With this strategy, he produces a lot of money when other people do not succeed. In early 1970, there was a decrease in the market that is famous. People crowded sell-his stock because of fear, Dow Jones index fall below 700, Buffett, of course, another act. He did a large-scale investment, with the share buy-it shares with the cheap price.
But we also know, how Buffet is a coward during the Internet stock prices soaring when people buy it with greed. But he does not lose money when a continental ultimately destroyed the internet stock prices, which caused many bankruptcy.

Continue to 6th edition ... ....