1. Consider probabilities: Warren Buffett is a fan of the card game Bridge, in which successful players beat their opponents by considering probabilities. Likewise, you can think of stocks in terms of probabilities. The Investopedia article points out that investors who consider the probability of a good return over 10 years is likely to ride out down cycles to find success in the long-term.
2. Realize that investing has psychological aspects: We would like to be unemotional in our investments, but instead, it is better to look at how you approach investing from a psychological standpoint, and then find a mindset that works for you.
3. Don’t pay attention to market forecasts: No one can truly predict the market. Buffett points out that investors should instead pay attention to the fundamentals of their investments, and choose those that will do well over the long term. These will likely ride out down markets, and do well during bull markets.
4. Wait for the good investments: Instead of investing in a bunch of mediocre companies, Warren Buffett suggests that you think as though you only have around 20 investment choices for your lifetime portfolio. This way, you will carefully choose what is most likely to work well for you over a lifetime.

As you can see, there is a lot of potential for making good decisions and thinking in a way that will help you see long-term success with your portfolio. But it requires research and discipline.

Image source: Ethan Bloch via Flickr

Post from: EveryJoe

8 Tips for Thinking Like Buffett, Part 2

Lucky for us, Investopedia took eight valuable tips from the book The Warren Buffett Portfolio and offers them to the world. Here are the first 4 of the 8 tips for thinking like Warren Buffett as you make investing decisions:

1. Consider stocks a business: Instead of looking at stocks as part of a game, look at is as a business. Buffett says that if people considered themselves “part owners” of the companies they invest in, they would make more deliberate choices and think things through.
2. Make larger investments: Buffett believes that if you do your homework, and make careful decisions, you can choose solid, fundamentally strong companies that you should feel comfortable putting more money into. Yes, you want some diversification. But Buffett feels there’s such a thing as too much of a good thing.
3. Reduce turnover in your portfolio: Constant buying and selling and trying to time things to “make it big” can result in missed growth, as well as adding up the transaction fees that eat into returns.
4. Don’t rely only on stock prices: Buffett looks at the fundamentals of a company, and its potential growth, before making a decision. If you choose a good investment, the stock price will eventually take care of itself.

Tomorrow we will look at the remaining four tips for investing like Warren Buffet.

Image source: Mark Hirschey via Wikimedia Commons

Post from: EveryJoe

8 Tips for Thinking Like Buffett, Part 1

Here’s why: CDOs and CDSs are major reasons that mortgage lenders started going crazy with approving borrowers. These investment vehicles made it very easy for banks to package their loans into securities and transfer the risk elsewhere. Loan officers get the commission, investors get the risk.

Nice.

And one of the architects of the CDS craze is Phil Gramm, who helped draft legislation as a member of the Senate that allowed these vehicles  (which Warren Buffett calls “weapons of financial destruction”) to take widespread root and avoid serious scrutiny. For those of you political junkies who think that the name Phil Gramm sounds vaguely familiar, here’s why: He’s John McCain’s former top economic advisor. (He resigned after calling the economic troubles a “mental recession” and saying the U.S. is a nation of “whiners.”)

Obviously, Phil Gramm is not solely responsible for the current conditions. There is plenty of blame to go around. But he clearly thought that CDSs were good economic policy. BloggingStocks pretty much summed up my feelings perfectly with this particular observation:

One thing is clear. If you think America is a nation of whiners and this is a mental recession, I strongly urge you to vote for McCain. But if you take a look at how much you are paying at the gas pump, how much of your retirement will be wiped out in the months ahead, and how you will pay all those bills as the unemployment rate climbs higher, it might be worth considering whether you can afford to elect a man who relies on Phil Gramm for economic advice.

Post from: EveryJoe

Phil Gramm, CDSs and Our Economy