Warren Buffett Explains Long Term Investing
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Buffett warns against overvaluing shot-term profits as they tend to be predictable. He advises looking into businesses where you know predictability. For example, Wrigley's Gum has been around for years. The company's predictability comes clear: no matter what happens, people will always chew gum. Any given person's personal preference to chew gum is unaffected by external circumstances. Therefore, there are no sharp spikes in returns, and they profitability remains consistent. As Buffett puts it, "Predictable products = predictable profits."
Buffett warns against overvaluing shot-term profits as they tend to be predictable. He advises looking into businesses where you know predictability. For example, Wrigley's Gum has been around for years. The company's predictability comes clear: no matter what happens, people will always chew gum. Any given person's personal preference to chew gum is unaffected by external circumstances. Therefore, there are no sharp spikes in returns, and they profitability remains consistent. As Buffett puts it, "Predictable products = predictable profits."
According to Mary, we must always keep in mind that the stock market is very short sided. She quotes Warren, "Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway." If these people are the smart ones, why aren't they so rich? The truth is these people get their money from commissions, and they cannot invest long term. At the end of the year, everybody wants to be on top, and high returns need to be shown to customers. Since these results must be shown year after year, it does not make sense for these stock brokers to show a subpar year.
According to Mary, we must always keep in mind that the stock market is very short sided. She quotes Warren, "Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway." If these people are the smart ones, why aren't they so rich? The truth is these people get their money from commissions, and they cannot invest long term. At the end of the year, everybody wants to be on top, and high returns need to be shown to customers. Since these results must be shown year after year, it does not make sense for these stock brokers to show a subpar year.
If you look at a company's earnings and consistency, you can reasonably predict how they will be in the future. Mary Buffett describes Warren's simple mathematical equation in which he predicts profits through present and future values. Money does not have to be spent on research and development because the data is already there. "Think beer, think gum, think Hershey's," Mary continues, "As long as people use these predictable products, there will be predictable profits." Warren has shown a tendency to choose companies that he knows well and avoids initial public offerings. An initial public offering or "IPO" can be a risky investment considering the difficulty in predicting how a stock or share will do on its initial day of trading.
Throughout his years, Warren demonstrated legendary success in the stock market and also became the largest shareholder and CEO of Berkshire Hathaway. He continues to preach his philosophy of "value investing," which he describes as buying companies that perform well and holding on to them long term.
Article Source: Articlelogy.com
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