The Quintessential

Pragmatist

“ The whole idea of a risk factor doesn’t

make sense to me. It comes from not
knowing what you’re doing.”
• The Sage of Omaha
• Applying Graham’s ideas
• Berkshire’s meteoric rise
• Personal style
• Being a contrarian investor
• Accumulating businesses
• Creating a conglomerate
 Choose Simplicity over
Complexity
When investing, keep it simple. Do
what’s easy and obvious; don’t try to
develop complicated answers to
complicated questions.
– Always keep it simple.
– Make your own investment decisions.
– Study the man who Buffett studied under.

Don’t forget that Buffett’s simple

strategies have led to his
 Maintain Proper
Temperament
Let other people overreact to the market.
Keep your when others do not, and you
will benefit.
– Hold on to great businesses.
– Know yourself.
– Never make an investment decision because
others tell you to.
To succeed in the market, you need only
ordinary intelligence. But, in addition, you
need the kind of temperament that can
help you ride out the storms and stick to
Buy Low- Tech, Not High-
Tech
In Buffett’s world, successful investing is
rarely a gee- whiz activity. It’s less often
about rockets and lasers and more often
about things such as brick, carpets, paint,
and insulation.
– Avoid businesses in changing industries.
– Invest in “old economy” businesses.
– Remember that it takes decades for
companies to become great.
Look for the absence of change. Look for
the business whose only change in the
 Concentrate Your Stock
Investments
Avoid what Buffett calls the “Noah’s Ark” style
of investing- that is, a little of this, a little of
that. Better to have a smaller number of
investments with more of your money in each.
– When putting together your stock portfolio,
aim to own no more than 10 stocks.
– Make sure that the stocks you buy fit Buffett’s
criteria.
– Be courageous.
Portfolio concentration- the opposite
strategy of diversification- also has the
power to focus the mind wonderfully. How?
 Examples:
• In 1986
– 3 major stocks: Capital Cities/ ABC,
GEICO &
– The Washington Post Co. made up 93% of
Berkshire’s portfolio. (worth $1.7 billion)
– Could not find stocks that met his
requirements.
• In 1987
– Market crashed, but Buffett didn’t invest.
– 3 major stocks now worth more than $2
Remember, The Emperor
Wears No Clothes on Wall
Street
Wall street, says Warren Buffett, is the only
place where people go to in Rolls Royce to
get advice from people who take the
subway.
– Ignore the charts.
– If someone tells you they have a “foolproof”
method to get rich in the stock market, run,
don’t walk, for the nearest exit.
– Invest like Benjamin Graham.
The prospectuses of most mutual funds say-
in small print- that past performance is no
guarantee of future success. Buffett says the
Don’t Swing at Every Pitch
What if you had to predict how every stock in
the (S&P) 500 would do over a next few years?
In this scenario, Warren Buffett- one of the
greatest investor of all time- doesn’t like his
chances. But if your job was to find only one
stock among those 500 that would do well? In
this revised scenario, Buffett now likes his
odds, which he figures at something like 9 in
10.
– Adapt Buffet’s punch-card idea to your
portfolio.
– Make sure that the pitch is in sweet spot.
 Practice Independent
Thinking
Stay away from a rampaging herd. If
you don’t, you and your investments
might get stampeded.
– Never substitute popular wisdom for
independent thinking.
– Make independent thinking one of your
portfolio’s great assets.
– Don’t be mindless contrarian investor.
Gather your facts, sit down, and
think, advises Buffett. There is no
Stay Within Your Circle of
Competence
Develop a zone of expertise, operate
within that zone, and don’t beat yourself
up for missing opportunities that arise
outside that zone.
– Write down the industries and businesses with
which you feel most comfortable.
– Do not make exceptions to your circle-of-
competence rule.
– Play your game, not someone else’s.
If you can rule out 90 percent of the
businesses in United States as outside
 Ignore Stock Market
Forecasts
Short-term forecasts of stock or bond prices are
useless, says Warren Buffett. They tell you more
about the forecaster than they tell you about the
future.
– Eliminate forecasts from any involvement in your
investment decision.
– Take the time you would spend listening to
forecasts and instead use it to analyze a business’s
track record.
– Develop an investing strategy that not depend on
the overall movement of the market.
The more volatile or more speculative the
markets, the more likely that people will begin to
turn to forecasts for help- but this is when
Understand “Mr. market”
and the “margin of safety”
What makes a good investor? According to
Warren Buffett, a good investor is someone
who combines good business judgment with
an ability to ignore the wild swings of the
marketplace. When the emotions start to
swirl, says Buffett, remember Ben
Graham’s “Mr. Market” concept and look
for a “Margin of safety”.
– Make sure you understand Buffett’s concepts of
Mr. Market and Margin of safety.
– Heed Buffett’s analogies.
– Bide your time, and wait for Mr. Market to get
Be Fearful When Others are
Greedy and Greedy When
Others are Fearful.
What will happen tomorrow? Will the market
go up, down, or sideways? To Warren Buffett,
these are uninteresting questions- except
insofar as the “contagious diseases” of fear and
greed will affect his own investing prospects,
either by driving down prices and creating
opportunities (fear) or by driving up prices and
closing off opportunities (greed). When
opportunities arise, Buffett is prepared to
move, when greed prevails, Buffett is prepared
to wait on the sidelines.
 Be Patient
Think 10 years, rather than 10 minutes,
advises Buffett. If you aren’t prepared to
hold a given stock for a decade, don’t
buy it in the first place.
– Heed Charlie Munger’s advice.
– Buy only stocks that you won’t trade for five
years or more.
– Remember that “time is the friend of the
wonderful business”.
If the question is, ”How long will you
wait?”-in other words, how long will you
• Example:

Buffet managed to own Borsheims,

See.s Candy Shops, The Coca-Cola
Company, The Washington Post, Capital
Cities/ ABC. all without looking at daily
price quotes.

He would not care if the stock market

closed for 10 years..
Buy Businesses, Not Stocks
Once you get into the right business,
you can let everyone else worry about
the stock market.
– Remember that a stock is a piece of a
business.
– Evaluate the fundamentals of the business
before you buy any stock.
– Use the internet to do your homework.

Don’t think about “stock in the short

 Example:
• Wells Fargo
– Money-centre bank, financially strong
– Nationwide recession in 1990, set aside
$1.3 billion for potential loan losses
– Stock price dropped from $86 to $41.30
– Actual losses less than expected.
– Bank remained very solvent & even had
profit of $21 million in 1991.
Look for a Company That Is
a Franchise
Some businesses are what Warren Buffet
calls, “franchises”. They have high walls
and deep moats around them. They are
more or less unassailable. These are the
businesses you want to find.
– Search out the franchises that will stand the
test of time.
– Study companies underlying fundamentals
before you buy them.
– Don’t hesitate to “take strikes” before you
swing.
 Examples:
• General Foods Company
– In 1980s, perceived as stodgy food co. by investors
– In 1985, price went up 3-fold after Buffett’s
purchase.
• The Coca-Cola Company
– Safe co. but unappealing to investors.
– Buffett bought in 1988-1989, stock price has
quadrupled.
• The Washington Post Company
– Buffett bought it even during height of 1973-1974
bear market.
• GEICO Corporation
–
Practice Inactivity, not
Hyperactivity

There are times when doing nothing is

a sign of investing brilliance.

– Be a decades trader, not a day or swing

trader.
– Don’t mistake activity for achievement.
– Beware of hidden costs.

When in doubt, be lethargic. Better to

View Market Downturns as
Buying Opportunities
Market downturns aren’t body blows;
they are buying opportunities. If the
herd starts running away from a good
stock, get ready to run toward it.
– Change your investing mind-set.
– Always search for value.
– Pounce when the three Buffett variables
come together.
Buffett says that investors don’t lose
when markets fall-only “disinvestors.”
Make Your Own Investment
Decisions
Don’t listen to the brokers, the analysts, or the
pundits. Figure it out yourself.
– Turn off the noise.
– Study the playing field and not the scoreboard.
– Know the value of something rather than the
prices of everything.
Warren Buffet doesn’t know what his own
company- Berkshire Hathaway-is selling for
today. He doesn’t know and doesn’t much care
what it was selling for yesterday or will sell for
tomorrow. He does care what it will be selling
for a decade from now-because that will be a
Don’t Look At The Ticker
Tickers are all about prices. Investing is
about a lot more than prices.
– Turn off the noise.
– Study the playing field and not the scoreboard.
– Know the value of something rather than the prices
of everything.
Warren Buffet doesn’t know what his own
company- Berkshire Hathaway-is selling for
today. He doesn’t know and doesn’t much
care what it was selling for yesterday or
will sell for tomorrow. He does care what it
will be selling for a decade from now-
Ignore the Macro; Focus on
the Micro
According to Warren Buffet, the big things-
the large trends that are external to the
business-don’t matter. It’s the little things,
the things that are business specific, that
count.
– Don’t pretend to be an economist if you’re not
one.
– Don’t panic.
– Macro events can create opportunities.
It’s not possible, admits Buffet, to imagine a
cataclysm so terrible that the markets
 Take a Close Look at
Management
The analysis begins-and sometimes ends-
with one key question: Who’s in charge
here?
– Assess the management team before you
invest.
– Look for shareholder-friendly companies.
– Avoid investing in any company that has a
record of financial or accounting shenanigans.
If management stresses the appearance of
performance over the substance of
performance, says Buffet, keep your wallet
Read, Read Some More and
Then Think

Buffet spends 6 hours reading, an

hour on phone and the remaining time
thinking.
– Get in the habit of reading.
– Restrict your time only to things worth
reading.

Accumulated knowledge needs to

uncovered.
Use All Your Horsepower

How big is your engine and how

efficiently does it work?
– Right Role Models.
– Strive for Rational Behavior, Good habits,
proper temperament.
– Write down practices.

Financial Success is a matter of

having right habits.
 Avoid Costly Mistake of
Others
Study mistakes of others so as not to
go there.
– If it sounds too good to be true, it probably
is.
Get actively involved in your decision
making.
– Never abdicate control of your profile.
– Always watch cost

There is no reason to live through

Become a Sound Investor

Its not about brilliant investing, fads

or trends but about sound investing?
– Develop sound investing habits.
– Always fight the noise to get the real story.
– Always practice continuous improvement.

Clear one step hurdles rather than

seven foot hurdles.
Is investing really so easy?
 Statistics
• National Securities Depository
Limited
Investor Accounts - 90,08,824
• Central Depository Services Limited
Investor Accounts : 54,41,947
• BSE + NSE Turnover (since 1/1/09)
Rs. 58 crores/ $ 11.6 Million
• Dow Jones Industrial Average (since
1/1/09)
Warren Buffett invests like a
girl
• Warren Buffett’s approach towards investing is
different from the way most men do.
• Women spend more time researching their
investment choices than men do.
• Men trade 45% more often than women do.
• Women's portfolios gains 1.4% more than
men's portfolios.
• Women tend to look at more than just numbers
when deciding whether to invest.
• Women also have a keen eye when it comes to
identifying companies poised for greatness.
THE
PSYCHOLOGY OF
INVESTING
-A SURVEY
 Survey
• Have you heard about Warren Buffett?
25

20

15

10

0
Yes Close Not Quite
• What are the guiding factors while
investing in stock markets?

stock price ticker

market
sentiments
companies
fundamentals
listen to big guns
• Would you like to diversify your
portfolio or put all eggs in one basket?

Column1

former
latter
• Would you like to invest in a matured
company or a new upcoming venture?

18
12
6
0
• While investing do you think about
“stock in short term or business in long
term”?

day to day
fluctuations affect
me! I don't care
about dividend
performance of
the company! I
care about
dividend
• Would you like to take your own
investment decisions or would you bank
upon ‘stock trade pundit’?

stock trade pundit

I know better
• It may sound absurd but do you pay
heed to who’s managing the company,
before you pick its stock?
6
4
2
0
• How would you manage your portfolio
in times of adversity?
25
20
15
10
5
0
• How important are macro- economic
factors while investing on bourses?

they affect my
decision
not always
important
if the fundamentals
of the company are
strong. Do hell with
macro- factors
 Bibliography
• Warren Buffett- Robert Heller
• The Midas Touch- John Train
• How Buffett Does It- James Pardoe
• The Warren Buffett Way- Robert
Hagstrom
• wikipedia.com
Thank You
Divashree Batra-
07
Swati Gaur- 12
Prateek Kanwal-
26
Harshveer Saluja-
56