Lesson No. 1: Be Frugal
Warren Buffett is a multi-billionaire; yet, he lives simply. He still lives in the same modest house in Omaha, Nebraska that he bought 50 years ago. He drives his own car. His simple life affords him more to invest. He demands this same quality from managers. Buffett is wary of corporate waste. Excessive executive pay or silly perks are red flags. Frugal people don’t need fast returns to support extravagant lifestyles. This leaves them free to think more clearly about when to buy and sell stocks, making them much better investors.
Lesson No. 2: Be Patient
Resist the itch to constantly buy or sell stocks. Have the patience to wait a long time until some market turbulence brings great companies trading at really cheap valuations.
Lesson No. 3: Be A Contrarian
Go against the crowd. Be fearful when others are greedy and to be greedy when others are fearful. Personally, I remember my first taste of success when stocks of ImClone sold off from the insider scandal. I checked fundamentals and found them to be sound. I bought as prices plummeted and sold with enough profits to buy a car for my son. Nice. I replicated this strategy and made more money to help buy cars for my other children.
Lesson No. 4: Buy companies that you are familiar with
If you don’t understand a company’s product or how it makes money, avoid it. Think Bitcoin.
Lesson No. 5: Consider disliked value stocks
Buy disliked value stocks that are so beaten down they’re often virtually ignored by other investors.
Lesson No. 6: Buy Undervalued Stocks
Choose companies with good return on equity, solid operating margins and reasonable or no debt. Buy companies that generate a lot of cash and invest it well or return it to shareholders in the form of dividends or buybacks. Calculate the present value of all the cash that will be generated by a company in the future. Build in a “margin of safety” by purchasing a stock well below its intrinsic value.
Lesson No. 7: Look for Companies with Economic Moats
Moat refers to sustainable competitive advantage that keeps potential competitors at bay. This could be a patent protection on drugs, high costs to get into a business or simple brand power. Consider BNSF Railway – It’s hard for anyone to lay enough track in North America to start a competing railroad.
Lesson No. 8: Buy Big, Concentrated Positions
Buffet can buy big positions because he has billions of funds; we don’t, so let’s skip this one. Sorry.
Lesson No. 9: Hold For Life
Buffett holds stocks “forever.” He likes stocks that outperform for decades. Think Coca Cola, American Express.
Lesson No. 10: Believe In America
Buffett believes in America, not the Democratic or Republican parties. He does not trade based on President Obama or President Trump at the White House. He trades to make money.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].