The investor Warren Buffett isn’t shy when it comes to sharing his investment wisdom. I think that’s good news for a private investor like me, as Buffett’s share picking prowess is legendary. Here are two helpful tips Buffett has shared that I think can improve my chances of finding attractive shares to add to my portfolio.
Warren Buffett makes it known that he’s looking
Let’s imagine you wanted to buy a second hand car, or a rare first edition of an antique book. The chance of it coming your way by sitting indoors and doing nothing is very low.
Every year in his annual shareholder letter, Buffett makes it clear what his criteria are for buying businesses. He often even includes a phone number so that if someone has a business to sell that meets Buffett’s criteria, they can contact his company to tell them about it.
I think it’s the same with shares. Making it known that one is looking to buy shares makes it more likely that one will get information relevant to that search. That could be asking a stockbroker to keep one updated on their ideas, reading The Motley Fool regularly, joining with some friends in an investment discussion club – or all of the above. But actively searching for information and enrolling the resources of people besides oneself in that search can be very helpful, in my experience.
Now, a lot of ideas might come in that aren’t attractive. I think that’s fine. The first stage is simply having access to diverse streams of investment ideas, like Warren Buffett does. They can then be investigated and assessed against one’s own investment criteria in a second stage.
The virtue of patience
Reading a lot of information sources, the language used can sometimes be reminiscent of a bazaar. There are “once in a lifetime opportunities” and “urgent ideas”.
Some ideas truly are urgent. During the global financial crisis, several large American financial institutions basically phoned Buffett up and asked him for vast sums of money. That’s how Buffett ended up with a position in Goldman Sachs, which he only finally unwound last year. There are also once in a lifetime ideas, although Buffett reckons that over the course of a life most people will have more than one great opportunity come their way.
But the key thing is that, no matter how urgent the imploring, Warren Buffett is willing to wait for an idea to come along that he thinks suits his investment criteria. He will wait years if necessary and often does. Indeed, one criticism some shareholders in his company Berkshire Hathaway have is that it is sitting on a huge cash pile rather than putting it to use in the market.
I think Buffett is right to be patient when hunting for good investment ideas that suit his investment criteria. Like him, I try to get information from a diverse range of sources. I digest it while it’s current, but that doesn’t mean I need to act on it. For that, I try to wait until I find what I think is a great opportunity.
