Can Warren Buffet's method be distilled into basic steps?
"Warren Buffet isn't using any special sauce. He looks for value and ignores hype, greed, and fear. He buys what he knows and looks for companies that generate cash and/or are available for a discount of their true value. He explains what he looks for in a company and his reasons for buying it. He has said on numerous occasions, ""I look for intrinsic value."" (So there's your formula.) Human nature is often  irrational and investing seems to bring out the fear and greed. I've always been a bit surprised when people ascribe some sort of sixth sense to Warren Buffet's success. He just works hard and doesn't deviate from a sound strategy. ""Be fearful when others are greedy and greedy when others are fearful."" And of course, rule one: ""Don't lose money."" It's not a joke. How many people buy high and sell low because of fear and greed? When the market tanks, buy more. Finally, anyone can invest with Buffet without all the work. Just buy a few shares of BRK.A or BRK.B."
you can check google scholar for some research reports on it.  depends how complex you want to get...  it is obviously a function of the size of the portfolio of each type of asset. do you have a full breakdown of securities held? you can get historical average volumes during different economic periods, categorized by interest rates for example, and then calculate the days required to liquidate the position, applying a discount on each subsequent day. Probably not.  Once the formula is out there, and if it actually seems to work, more and more investors chase the same stocks, drive the price up, and poof!  The advantage is gone. This is the very reason why Warren Buffett doesn't announce his intentions when he's buying.  If people know that BRK is buying, lots of others will follow. "Please note that the following Graham Rating below corresponds to five years: Earnings Stability (100% ⇒ 10 Years): 50.00% Benjamin Graham - once known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss. Buffett describes Graham's book - The Intelligent Investor - as ""by far the best book about investing ever written"" (in its preface). Graham's first recommended strategy - for casual investors - was to invest in Index stocks.  For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them.  For advanced investors, Graham described various ""special situations"". The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund. The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach. But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for accurate automated analysis and profitable investment. For example, given below are the actual Graham ratings for International Business Machines Corp (IBM), with no adjustments other than those for inflation. Defensive Graham investment requires that all ratings be 100% or more. Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%. International Business Machines Corp - Graham Ratings Sales | Size (100% ⇒ $500 Million): 18,558.60% Current Assets ÷ [2 x Current Liabilities]: 62.40% Net Current Assets ÷ Long Term Debt: 28.00% Earnings Stability (100% ⇒ 10 Years): 100.00% Dividend Record (100% ⇒ 20 Years): 100.00% Earnings Growth (100% ⇒ 30% Growth): 172.99% Graham Number ÷ Previous Close: 35.81% Not all stocks failing Graham's rules are necessarily bad investments. They may fall under ""special situations"". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety. Thank you." Slice and Dice would have the approach for dividing things up into 25% of large/small and growth/value that is one way to go. Bogleheads also have more than a few splits ranging from 2 funds to nearly 10 funds on high end. Nathan's answer was a +1 from me. The answer is not always simple. Having the money available is surely the first step. Using Pete's process aligns with this.  Another thought is depending where you are in your finances, delay by a day for every $100 in cost. e.g. For a $1000 purchase, sleep on it for 10 days. Adjust the number for your circumstance. "Thank you for the in-depth, detailed explanation; it's refreshing to see a concise, non verbose explanation on reddit.  I have a couple of questions, if that's alright.   Firstly, concerning mezzanine investors. Based on my understanding from Google, these people invest after a venture has been partially financed (can I use venture like that in a financial context, or does it refer specifically to venture capital?) so they would receive a smaller return, yes? Is mezzanine investing particularly profitable? It sounds like you'd need a wide portfolio.  Secondly, why is dilution so important further down the road? Is it to do with valuation?  Finally, at what point would a company aim to meet an IPO? Is it case specific, or is there a general understanding of the ""best time""?  Thank you so much for answering my questions." "(Leaving aside the question of why should you try and convince him...) I don't know about a very convincing ""tl;dr"" online resource, but two books in particular convinced me that active management is generally foolish, but staying out of the markets is also foolish.  They are: The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William Bernstein, and A Random Walk Down Wall Street: The Time Tested-Strategy for Successful Investing by Burton G. Malkiel Berstein's book really drives home the fact that adding some amount of a risky asset class to a portfolio can actually reduce overall portfolio risk. Some folks won a Nobel Prize for coming up with this modern portfolio theory stuff. If your friend is truly risk-averse, he can't afford not to diversify.  The single asset class he's focusing on certainly has risks, most likely inflation / purchasing power risk ... and that risk that could be reduced by including some percentage of other assets to compensate, even small amounts. Perhaps the issue is one of psychology? Many people can't stomach the ups-and-downs of the stock market.  Bernstein's also-excellent follow-up book, The Four Pillars of Investing: Lessons for Building a Winning Portfolio, specifically addresses psychology as one of the pillars." Since you seem determined to consider this, I'd like to break down for you why I believe it is an incredibly risky proposition: 1) In general, picking individual stocks is risky. Individual stocks are by their nature not diversified assets, and a single company-wide calamity (a la Volkswagen emissions, etc.) can create huge distress to your investments. The way to mitigate this risk is of course to diversify (invest in other types of assets, such as other stocks, index funds, bonds, etc.). However, you must accept that this first step does have risks.  2) Picking stocks on the basis of financial information (called 'fundamental analysis') requires a very large amount of research and time dedication. It is one of the two main schools of thought in equity investing (as opposed to 'technical analysis', which pulls information directly from stock markets, such as price volatility). This is something that professional investors do for a living - and that means that they have an edge you do not have, unless you dedicate similar resources to this task. That information imbalance between you and professional traders creates additional risk where you make determinations 'against the grain'.  3) Any specific piece of public information (and this is public information, regardless of how esoteric it is) may be considered to be already 'factored into' public stock prices. I am a believer in market efficiency first and foremost. That means I believe that anything publically known related to a corporation ['OPEC just lowered their oil production! Exxon will be able to increase their prices!'] has already been considered by the professional traders currently buying and selling in the market. For your 'new' information to be valuable, it would need to have the ability to forecast earnings in a way not already considered by others. 4) I doubt you will be able to find the true nature of the commercial impact of a particular event, simply by knowing ship locations. So what if you know Alcoa is shipping Aluminium to Cuba - is this one of 5 shipments already known to the public? Is this replacement supplies that are covering a loss due to damaged goods previously sent? Is the boat only 1/3 full? Where this information gets valuable, is when it gets to the level of corporate espionage. Yes, if you had ship manifests showing tons of aluminum being sold, and if this was a massive 'secret' shipment about to be announced at the next shareholders' meeting, you could (illegally) profit from that information. 5) The more massive the company, the less important any single transaction is. That means the super freighters you may see transporting raw commodities could have dozens of such ships out at any given time, not to mention news of new mine openings and closures, price changes, volume reports, etc. etc. So the most valuable information would be smaller companies, where a single shipment might cover a month of revenue - but such a small company is (a) less likely to be public [meaning you couldn't buy shares in the company and profit off of the information]; and (b) less likely to be found by you in the giant sea of ship information. In summary, while you may have found some information that provides insight into a company's operations, you have not shown that this information is significant and also unknown to the market. Not to mention the risks associated with picking individual stocks in the first place. In this case, it is my opinion that you are taking on additional risk not adequately compensated by additional reward. "My feeling is that you're basically agreeing to throw away a bucket of money for a lesson that doesn't have to cost a penny. Like another commenter said, you're putting the cart before the horse.  I once asked a similar question to a seasoned investor, though I wasn't in the position to toss my hard-earned cash into the well yet. He told me that the difference between the winners and losers is that the winners don't need the money. I'm not trying to say that there's a ""rich keep getting richer ..."" component here, while schlubs like me get nada.  The real nugget of wisdom he offered was that if anyone wants to do well as investors, we must invest in a way that we're not dependent on the money we have in the market. Instead, manage risk carefully so that you don’t get swept up in the emotional highs and lows.  For you, what I applaud is that you're willing to do your research first. And part of that should be anticipating how you will handle the anxiety when you put your money in at the wrong time or get out a little later than you should.  What I understand now is that you don’t need to be wealthy to “not need the money.” You just need to invest smartly and leave your emotions out of it." Audible has it.    http://www.audible.com/pd/Business/How-to-Win-Friends-Influence-People-Audiobook/B002V5BV96/ref=a_search_c4_1_1_srTtl?qid=1409496635&amp;sr=1-1  No clue on torrents.    If I had to pick three for someone just starting, grab the above and One up on Wall Street and Getting to Yes.    That would put you on a great path.  There is a lot of garbage in the category, but On Up was my beginning investment bible in high school and Getting to Yes is something anyone should read/listen to get a better understanding of basic negotiation. "Robert Kiyosaki's is basically a get-rich quick author.  But to answer your question: It is a sales pitch in disguise. See Marketplace's report on a Kiyosaki seminar, which reveals that the free work shop is a sales pitch for a 3-day work shop which costs several hundred dollars.  And the 3-day workshop is a sales pitch for ""advanced"" training which can cost as much as $45,000 (presumably in Canadian dollars, as the report was done in Canada). He does touch on some basic sound principles, but it's mixed with a lot of really bad (and in some cases illegal) advice.  You'll do much better to invest your time and money in reading materials that aren't advertised via infomercials. Kiyosaki may well be rich, but it's from selling his Rich Dad-branded material, not from investing in real estate, or any other investment portfolio See also John T. Reed's guru rating, and his review of Kiyosaki's book, Rich Dad, Poor Dad." The problem is that while there are a lot of statistics that can be created from basic market data such as prices and volume, along with the fundamentals of the company, I think that if you talk to 8 different day traders, you'll get 12 different theories of how to interpret and trade based on those numbers.  Also quite likely, the more successful someone is at day trading, the more closely they are likely to guard their secrets and not want to divulge them. If there was any uniform concensus, they you'd see all the daytraders doing the same thing, and moving as a group, shortly after which you'd get 'contra' folks who would try to gain by moving in opposition, or 'predicta' folks who would try to front-run the pack. and.... (I think you can see where this leads)  A better idea might be to just work on educating your-self firstly with regard to nomenclature and terms, and then move on to reading some stuff about how markets work   etc.  I'd suggest starting with a book like 'Wall Street Words' and/or 'A Random Walk Down Wall Street' since both are great introductions to things, and move on from there.  Note that both of those books have gone through multiple editions, so be sure to get the most recent one (especially if you are trying to save money and buy a used version)   You are also likely to find an nearly endless supply of 'seminars' that will offer to teach you somebody's proven method for a fee, or for 'free' but after which you find our you need to use their special tools or data sources etc (which cost money) to use their 'system'  (either of which makes me think that their system can't be that great if they figure it's a surer thing to charge for 'teaching' or 'tools/services' than it is to use their system, otherwise they'd just shut up, practice what they preach and make money that way instead)  It might be worth attending the free ones just to get exposure to someone's theory on how to game the system, provided you are 'not an easy mark' and can withstand the high pressure sales pitch for their books/software/services etc that pays their bills and almost invariably comes along with such a seminar. "Whether you use a professional financial planner or not, the basic steps are the same. It seems like you have done some detailed work on step 1, perhaps less detail (but not necessarily insufficient detail) on step 2, and concluded that you don't need to change anything in step 3. That's fine - if you concluded that you don't need to change anything, then you don't need to change anything! What you need to do from now on is There is nothing complicated or difficult about any of this. To paraphrase Charles Dickens, ""Income greater than expenditure - result, happiness. Income less than expenditure - result misery.""  Talking to a financial planner might encourage you to spend less (though of course you just acquired a new expense, ""buying financial planning advice""), just like joining to Weight Watchers might encourage you to eat less or exercise more. But in the end, it's you who have to take the action - other people can't do it for you." "To answer your question directly..  you can investigate by using google or other means to look up research done in this area.  There's been a bunch of it Here's an example of search terms that returns a wealth of information. effect+of+periodic+rebalancing+on+portfolio+return I'd especially look for stuff that appears to be academic papers etc, and then raid the 'references' section of those.  Look for stuff published in industry journals such as ""Journal of Portfolio Management"" as an example. If you want to try out different models yourself and see what works and what doesn't, this Monte Carlo Simulator might be something you would find useful The basic theory for those that don't know is that various parts of a larger market do not usually move in perfect lockstep, but go through cycles.. one year tech might be hot, the next year it's healthcare.  Or for an international portfolio, one year korea might be doing fantastic only to slow down and have another country perform better the next year.    So the idea of re-balancing is that since these things tend to be cyclic, you can get a higher return if you sell part of a slice that is doing well (e.g. sell at the high) and invest it in one that is not (buy at the low) Because you do this based on some criteria, it helps circumvent the human tendency to 'hold on to a winner too long' (how many times have you heard someone say 'but it's doing so well, why do I want to sell now""? presuming trends will continue and they will 'lose out' on future gains, only to miss the peak and ride the thing down back into mediocrity.)  Depending on the volatility of the specific market, and the various slices, using re balancing can get you a pretty reasonable 'lift' above the market average, for relatively low risk. generally the more volatile the market, (such as say an emerging markets portfolio) the more opportunity for lift. I looked into this myself a number of years back, the concensus I came was that the most effective method was to rebalance based on 'need' rather than time.  Need is defined as one or more of the 'slices' in your portfolio being more than 8% above or below the average.  So you use that as the trigger. How you rebalance depends to some degree on if the portfolio is taxable or not.  If in a tax deferred account, you can simply sell off whatever is above baseline and use it to buy up the stuff that is below.   If you are subject to taxes and don't want to trigger any short term gains, then you may have to be more careful in terms of what you sell.  Alternatively if you are adding funds to the portfolio, you can alter how your distribute the new money coming into the portfolio in order to bring up whatever is below the baseline (which takes a bit more time, but incurs no tax hit)  The other question is how will you slice a given market?  by company size?  by 'sectors' such as tech/finance/industrial/healthcare, by geographic regions?" "The first article you link clearly refers to Warren Buffet and doesn't, in regard to taxes, refer in any way to Berkshire Hathaway. The second article you link is titled, ""Ways Professional Traders Can Save Big At Tax Time."" Berkshire Hathaway is not a firm primarily engaged in trading. It is engaged in investing in companies that it feels offer long-term growth and appreciation. In some cases, their investment is in the entire company; in others, a very large percentage of its total capitalization. Trading, on the other hand, involves buying stocks, bonds, futures, etc. for near-term resale, ideally at a profit. Stock speculation is a risky and complex occupation because the direction of the markets are generally unpredictable and lack transparency.  As has been mentioned above, we are confident that Berkshire Hathaway use every technique at its disposal to reduce its tax burden. I am confident, as well, that they spend considerable effort and expense to be certain that they are never discovered making errors in their tax returns."