Invest Like Warren Buffett: Powerful Strategies for Building Wealth Summary
“Invest like Warren Buffett” by Matthew R. Kratter. Mr Kratter has more than 20 years of investing experience, including serving as a portfolio manager and investment committee member at Peter Thiel’s hedge fund Clarium. Warren Buffett is one of the most successful investors of all time, and he is a person I admire for this knowledge of investment.
People often confuse trading with investing. They are totally different concepts and require different strategies. This book is writing for long-term investors and some fundamental analysis metrics Buffett allegedly uses. This little and short book packs tons of wisdoms and metrics of investing.
The following are key takeaways I learned from this book:
- If summarize Buffett’s main investment strategy in one sentence, it would be this: “Buy shares in a few high-quality, well-run businesses at a fair price, and then hold them forever”
- How to spot a great business?
- Buffett reveals how he identifies great businesses “I look for simple businesses, with consistent performance, and favorable long term prospects”
- The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
- To sumarize a great business will have the following characteristics:
- simple, easy-to-understand business
- Strong brand recognition
- Will be selling the same product or service 1o years from now
- Consumers need to buy the product or service again and again
- Able to raise prices with inflation, or even more quickly
- A great business will have earnings that show a smooth upward trend
- A great business will show a consistent return on equity (ROE) above 20%
- A great business will show a consistent return on total capital (ROTC) greater than 15%
- Buffett typically invests in companies where the long-term debt could be paid off using 4 years or less of net profit
- A great business pays a dividend and/or buys back stock
- How much to pay for a High-Quality Business?
- You can calculate it in one of 2 ways:
- Earrings per share divided by the stock’s price per share
- Net profit divided by the market cap
- You can calculate it in one of 2 ways:
- The best time to buy stocks:
- “A simple rule dictates my buying: be fearful when others are greedy, and be greedy when others are fearful”
- “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price”. The easiest time to buy a great business at a great price is during a bear market.
- One Method is just to wait for the dividend yield to get to 4%, or the trailing P/E(calculated using the company’s last 12 months of earnings) to get to 15 or lower on a stock like Coke. This is the “Valuation Method”
- The second method is the “market timing” method. It involves waiting a fixed period of time into a bear market before buying – Or waiting for a large peak to trough draw down in price
- Using this “market timing” method, you would wait for Coke to sell off 40-50% from its last highest price, and then buy your position
- That is the time you want to be loading up on businesses like Coke, especially if it has fallen over 40% from its peak, has a P/E of 15 or less, and has a dividend yield approaching or exceeding 4%
I highly recommend this book, it will only take you a day or two to finish reading it. You won’t feel waste of your time unless you are an absolute investment expert.
Let me know what you think about this book from the comment area below!
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