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Warren Buffett’s Ridiculously Simple Investment Strategy Could Make You Rich

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Warren Buffett CEO Berkshire Hathaway Oracle of Omaha

Every year when Berkshire Hathaway’s annual letter to shareholders is released, it seems the entire investment world pauses to read what one of the greatest investors of all time thinks about the current state of the market and the economy. .

This year was no different, as Warren Buffett again gave us important insight into his perspective on the company he runs and the investment landscape. In the 10-page letter, one statement in particular was highlighted that many investors would benefit from.

Charlie [Munger] and I’m not a stock picker, we’re a company picker,” Buffett wrote. If we all adopted this mindset, I’m sure our portfolio returns and peace of mind would improve significantly.

Focus on the underlying business

Buffett’s statement is particularly timely given the trend in investing. Individual and institutional investors are increasingly seeking short-term gains from their stock selections. At less than six months, the average holding period for a stock is the lowest it has ever been. That’s a significant drop from the eight-year peak in the mid-1950s.

What has led to such a big change in the way we invest? There are two main reasons for this.

First, the rise of commission-free trading, led by the popularity of trading apps like Robinhood Markets, which makes buying and selling shares extremely easy. Robinhood has even been accused of turning investing into a game, enticing inexperienced investors to trade too often, leading to low returns.

Then there is the proliferation of the media industry and, with it, financial news. We can set notifications on our phones to get portfolio updates 24/7. This can lead us to act when it is not necessary, buying and selling stocks based on new information, however insignificant.

The short-term nature of the stock market has created an environment in which the competition for immediate results is extremely fierce. And this is a game that is best avoided as an individual. Short-term investors cannot benefit from long-term growth in company revenues and profits. And Buffett thinks we should focus on these fundamental metrics.

Netflix is ​​the perfect example

Netflix (NYSE:BRK-B) (NYSE:BRC-2.74%), the world’s leading streaming stock, provides valuable insight into what Buffett means in the letter to shareholders.

In the last 15 years, Netflix stock has risen nearly 12,000%, making the company one of the best individual investments to make in the stock market during that time. Despite this gargantuan performance, the stock underperformed the S&P 500 in 2011, 2014, 2016, 2019, and 2021. In 2022, Netflix shares are down 40%, while the broader index is down 10%. There is no question that stock pickers, as opposed to “trade pickers,” would have sold their Netflix holdings after these periods of poor performance.

But if you had taken the time to understand the company’s initial strategy, which was to invest heavily in content development to get as many subscribers as possible before competitors entered the streaming market, you probably would have maintained and even increased its position on Netflix. .

In the last ten years (from 2011 to 2021), Netflix subscribers have gone from 26.3 million to 221.8 million. And the company’s annual revenue has more than quadrupled during that time, while net income has increased from $226 million in 2011 to $5.1 billion in 2021. Anyone who’s been following the real deal, and not just the price of the shares, you’ll know that Netflix used its first-mover advantage to capitalize on the shift to streaming and build an innovative, industry-leading company.

He may be 91 years old, but Warren Buffett is as mentally fit as ever. As investors, we can still learn a lot from his words. We should think of investments as stocks in real companies and not as charts and tickers on a screen.

This Ridiculously Simple Investment Strategy From Warren Buffett Could Make You Rich The article first appeared in The Motley Fool Germany.

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This article represents the author’s opinion, which may differ from the “official” recommendation position of a premium Motley Fool advisory service. Questioning an investment thesis, including our own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

This article was written by Neil Patel and was published on Fool.com on 03/11/2022. It has been translated so that our German readers can join the discussion.

The Motley Fool owns shares and recommends Berkshire Hathaway (B shares) and Netflix. The Motley Fool recommends the following options: Long $200 January 2023 Call Options on Berkshire Hathaway (B-Shares), Short $200 January 2023 Put Options on Berkshire Hathaway (B-Shares) and Short $265 Call Options in January 2023 in Berkshire Hathaway (B shares).

Motley Fool Germany 2022

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