Value investing

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12. Warren Buffett's principles

Warren Buffett regards himself as both a growth investor and a value investor, and has often described himself as a blend of Ben Graham and Phil Fisher, two early exponents of the two arts.

Buffett's core principles are definitely worth noting, even if you decide to depart from them.

• Stick to businesses you thoroughly understand.
• Avoid risk by only investing in companies whose future cash flows are certain.
• Only buy shares in companies if you expect above average returns.
  Otherwise you are better off putting your money in a tracker fund.
• Only buy if you can get shares for less than they are worth.
  If you buy a business producing above average returns for more than it is worth, the best you can expect is average returns.
• Concentrate on value, not price.
  Price is what you pay. Value is what you get.
• Ignore short term market sentiment.
  Buy shares on the assumption that the market is going to close for the next five years and that you're happy to leave your money in there.
• Do not churn your portfolio.
  Firstly, dealing represents a voluntary tax on your portfolio, and secondly you need to give compound interest a chance.
• If you make a mistake, learn from it.
  You don't have to make it back the way you lost it.

1. What is value investing? 2. Ben Graham 3. Does value investing suit you? 4. Back in fashion 5. Undervalued assets - introduction 6. Undervalued assets - property companies 7. Debt 8. Earnings 9. Earnings - an example 10. Dividends 11. Ratio of market capitalisation to sales 12. Warren Buffett's principles 13. Why do stocks become undervalued/overvalued? 14. Conclusion