Warren buffett definition of investing

Investing disclosure: The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives.

Investing involves risk including the potential loss of principal. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Managers are expected to concentrate on the businesses they know well so that Warren is free to concentrate on what he does well: investing.

My own reaction upon meeting Warren took me by surprise. Most people are quick to conclude that someone or something they encounter personally is exceptional. This is just human nature. Everybody wants to know someone or something superlative.

In fact, I was extremely skeptical when my mother suggested I take a day away from work to meet him on July 5, I mean, spend all day with a guy who just picks stocks? Are you kidding? I am sorry. Some of the people in the car were as skeptical as I was. When I arrived, Warren and I began talking about how the newspaper business was being changed by the arrival of retailers who did less advertising.

What are the growth businesses for IBM? What has changed for them? On that first day, he introduced me to an intriguing analytic exercise that he does. His enthusiasm for the exercise was contagious. I stayed the whole day, and before he drove off with his friends, I even agreed to fly out to Nebraska to watch a football game with him.

Acquiring the Warren Buffett Way by Warren Buffett Understanding intrinsic value is as important for managers as it is for investors. This principle may seem obvious, but we constantly see it violated. And, when misallocations occur, shareholders are hurt. For example, in contemplating business mergers and acquisitions, many managers tend to focus on whether the transaction is immediately dilutive or antidilutive to earnings per share or, at financial institutions, to per-share book value.

An emphasis of this sort carries great dangers… Imagine that a year-old first-year M. The M. But what could be sillier for the student than a deal of this kind? At Berkshire, we have rejected many merger and purchase opportunities that would have boosted current and near-term earnings but reduced per-share intrinsic value. That happens because the acquirer typically gives up more intrinsic value than it receives.

Almost by definition, a really good business generates far more money at least after its early years than it can use internally. The company could, of course, distribute the money to shareholders by way of dividends or share repurchases. But often the CEO asks a strategic planning staff, consultants, or investment bankers whether an acquisition or two might make sense. The acquisition problem is often compounded by a biological bias: Many CEOs attain their positions in part because they possess an abundance of animal spirits and ego.

When such a CEO is encouraged by his advisers to make deals, he responds much as would a teenage boy who is encouraged by his father to have a normal sex life. Some years back, a CEO friend of mine—in jest, it must be said—unintentionally described the pathology of many big deals.

This friend, who ran a property-casualty insurer, was explaining to his directors why he wanted to acquire a certain life insurance company. After droning rather unpersuasively through the economics and strategic rationale for the acquisition, he abruptly abandoned the script.

It comes across in many ways. We are quite candid and not at all adversarial. Warren stays away from technology companies because he likes investments in which he can predict winners a decade in advance—an almost impossible feat when it comes to technology. Unfortunately for Warren, the world of technology knows no boundaries. One area in which we do joust now and then is mathematics.

Once Warren presented me with four unusual dice, each with a unique combination of numbers from 0 to 12 on its sides. He proposed that we each choose one of the dice, discard the third and fourth, and wager on who would roll the highest number most often. He graciously offered to let me choose my die first. You choose first. Because of the careful selection of the numbers on each die, they were nontransitive. Each of the four dice could be beaten by one of the others: die A would tend to beat die B, die B would tend to beat die C, die C would tend to beat die D, and die D would tend to beat die A.

This meant that there was no winning first choice of a die, only a winning second choice.

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