Aug. 19, 2008 - Notes from the Warren Buffett Portfolio
I was just browsing through the first few chapters and this is what I got so far. Its a pretty cool book in the sense that it tackles the issue of passive vs active management and comes up with a 3rd alternative. Basically it talks about Focus Investing, which when viewed from the perspective of our assignment simply means "don't invest in a company that one does not know much about just for the sake of diversification" . In fact one should own a small number of outstanding companies that one understands well.
Other key points include:
- Keep approximately 10-15 stocks with a larger proportion of funds in just 3-4 stocks
- Be aware of the accumulated transactions cost by aimlessly trying to diversify
- Be willing to commit at least 10% of your net worth when you think you've found a good investment
- A drop in share price might be an opportunity to make money so don't ignore those
- Risk should be viewed from long-term economic prospects and the ability of current management instead of short-term price fluctuations. Be Patient
The problem here is that this strategy is meant for real life and requires a much longer time span than we have. But its the intuition behind this strategy that we should focus on. One suggestion is that we each nominate a particular industry or market that we feel we are familiar with and concentrate on getting at least 2 good companies to invest in. I think I will be able to get a little more insight in the oil and petroleum industry so I'm gonna go ahead and research companies in that industry. So let me know whats on your minds then uh?
PS: We all don't have to write such long entries here, I just talk alot. Its just to help us comminicate better. And yes... please feel free to suggest some other approach or add to this.
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