Thursday, March 03, 2005

Warren Buffett, the Greatest Trader?

It's about time someone wrote about how Warren Buffett truly achieves his eye-popping returns. Jim Altucher is the author of the new book, Trade Like Warren Buffett. I casually flipped through the book the other night at Barnes & Noble. A very thorough work Altucher has done and someday if I can catch up on my reading...I'll have to buy and read.

In the mean time, RealWorld Trading interviewed Altucher about Buffett and his new book. Read it here.

What I like most about the trading style Altucher outlined is Buffett's use of categories (Workouts, Generals, and Controls) to allocate his trading assets. The best part? While everyone thinks of Buffett as a long-term investor...50% of his profits came from the Workouts category. A category whose performance he described as "predictability coupled with a short holding period, produces quite decent annual rates of return." I guess, forever might not be his favorite holding period after all.

Also take note of the use of demographics in his trading. Buffett saw potential in a Gillette due to 3 billion people shaving everyday, thus a small blip in earnings would not impact the overall trend. Of course, other factors come into play. As Buffett is quoted...
  • "The investor of today does not profit from yesterday's growth."

  • "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

  • "Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised."

Enjoy the interview!


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