I think the book that everybody should read is Buffettology. If they have read it then they should read it again.
‘it’s the fundamental analysis part that i think is boring. Reading annual reports, and such.Having to have an encyclopaedic knowledge of the economy and always reading the financial section of the newspaper’
Buffettology will tell you why the world’s most successful investor takes little notice of what is in the financial section of the newspaper. He does not care about daily fluctuations in share price. Fundamental analysis is not a full time job. I think it is similar to a property purchase – 90% of the research is done before the investment. Of course if you are attempting to earn an income from shares in the short term from technical analysis and you need to analyse daily price movements there is more work involved. However this would be similar to trying to make money in daily fluctuations in a the price of a property, and you can’t tell me that you wouldn’t have your work cut out doing that. The main point here is that the more the average investor tries to ‘trade’ and make money from short term fluctations, the worse they do.
This article explains that most investors would be better keeping the shares they originally bought, instead of jumping from one thing to another;
http://www.aspectfinancial.com.au/af/news?xsl-newsID=6&xtm-licensee=aspecthuntley
‘John picks a stock to analyse it and decides it is undervalued. He puts an order in with your broker then buy stock XYZ for $1.00. The stock trades up to $1.20 in a matter of weeks. Now surely it is over-valued (How do you determine this, fundamental analysis). He sells. The stock is trading at $2.50 in 5 weeks time’
Warren Buffett does not sell the stock. He will only sell the stock if the fundamentals of the business have changed, not if the price has gone up.
‘Warren Buffett did not just buy stocks. He was the majority share holder so he could go in and build the company that’s why he is so rich. Mum & dads & average investors that use this technique cannot be majority share holders.’
I don’t think that it is fair to say that his success is based on being a majority shareholder in companies. He of course does have a controlling influence as a major shareholder, but from what I have read, he will only buy into a company that has good management and is good from a business perspective. He doesn’t try to get in there and change it. Therefore, the same returns can be had by ‘mum and dad’ investors.
A good way to find a few Buffett-style stocks is to use the search features at;
http://www.aspectfinancial.com.au
I have found it really useful, and they have a 14 day free trial on at the moment…..
And I really recommend the Buffettology book!
Matt
ps. sorry if my post is long winded or sounds like a book review…!
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