Before you can successfully model a person's investment strategy,
you must first model their beliefs. It is a person's beliefs about
investing that shape their decisions, their actions and their
results.
Let's us now compare the beliefs of the average investor or fund
manager to the beliefs of Warrant Buffett.
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Wall Street
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* Believes in broad diversification into numerous financial
instruments.
* Short-term performance focused. Buys when a stock's price is
rising (good news) & sells when a stock is falling (bad news).
* Prejudice against companies who don't pay dividends.
* Pressured to invest funds
* Believes that in order to achieve higher returns, you must take
higher risks
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Warren Buffett
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* Believes in concentrating his funds in a few core businesses that
he understands very well.
* Long-term value focused. Buys good stocks when the price is
falling (bad news) & sells when the price is rising (good news).
* Prefers company to retain its earnings & allow his wealth to
compound tax-free
* Invest only when there is a high probability of profits.
* Believes it is possible to achieve high returns with very low
risks.
The reason why Warren Buffett is able to consistently beat the
market of average investors & money managers is because he holds
very different beliefs and philosophies about how the markets work.
Through studying these differences, one can see clearly how Warren
Buffett invests and you can do the same too.
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