Warren Buffett's philosophy
Warren Buffett has consistently ranked highly on Forbes' list of billionaires. It is not surprising that Warren Buffett's investment strategy has reached mythical proportions. Buffet follows several important tenets and an investment philosophy that is widely followed around the globe.
Buffett follows the Benjamin Graham school of value investing. Value investors look for securities with prices that are unjustifiably low based on their intrinsic worth. There isn't a universally accepted way to determine intrinsic worth, but it's most often estimated by analyzing a company's fundamentals. Like bargain hunters, the value investor searches for stocks that they believe are undervaluedby the market, or stocks that are valuable but not recognized by the majority of other buyers.
Buffett takes this value investing approach to another level. Many value investors do not support the efficient market hypothesis, but they do trust that the market will eventually start to favor those quality stocks that were, for a time, undervalued. Buffett, however, isn't concerned with the supply and demandintricacies of the stock market. In fact, he's not really concerned with the activities of the stock market at all. This is the implication in this paraphrase of his famous quote: "In the short term, the market is a popularity contest; in the long term it is a weighing machine."
He chooses stocks solely based on their overall potential as a company – he looks at each as a whole. Holding these stocks as a long-term play, Buffett seeks not capital gain but ownership in quality companies extremely capable of generating earnings. When Buffett invests in a company, he isn't concerned with whether the market will eventually recognize its worth. He is concerned with how well that company can make money as a business.
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