Buffett’s Long-Term Investing Strategy was written by 21Cryptos Team, and it’s included in issue #19 of 21Cryptos Magazine. To read more articles like this subscribe today. To read other free articles check out our Magazine category. Follow us on Instagram, Facebook and LinkedIn.
This article is from an earlier date and as such can contain figures that were actual at time of writing.
Warren Buffett is known to be the world’s greatest investor. Whatever his views are on bitcoin and cryptocurrencies in general, no one can deny that when it comes to making money, he knows what he’s doing.
Buffett has used a very specific and consistent method when accumulating his wealth– that of Value Investing.
While many traders and investors prefer to find undervalued projects and companies to invest in, Buffett instead likes to find companies that are already performing well, but that have a large potential for growth.
Buffet looks at the business itself, how management performs, the company’s finances, and lastly the value of the company in terms of current standings, and potential.
With the business side of his valuations, Buffett first of all makes sure that he only invests in companies he can understand. The rationale here being that in order to predict future growth accurately, one must have a deep understanding of the specific industry and operating style of the company involved. Without this, everything is a shot in the dark. Buffett analyses the business as opposed to the market or sentiment, he then looks for a consistent operating history, and finally he make a decision regarding the future projections of that business.
The next, and somewhat overlooked aspect that Buffett looks into is the management of the company– he assesses whether the management is rational, based on how much of the company profit goes back into growth, or into the shareholders’ pockets. Secondly, he looks at whether the management is honest with their shareholders when they make mistakes, or whether they try and cover up a bad situation to save face. Finally, Buffett looks at the overall management strategy – does the company simply copy other competitor strategies, or do they pave the way forward with their own analysis of their market and growth prospects?
In terms of finances, Buffett looks at the potential amount that can be generated for owners and shareholders– which is what incentivises investors to contribute to the company’s success. He then also has a ‘one dollar premise’ which is based around what the value of a single dollar of retained earnings is worth in terms of market value. Overall– in terms of the company’s finances, he wants to make a profit, and that comes as the priority when analysing this section of the business.
Finally, Buffett looks at the value of a company as a whole– looking at long-term profitability over short term fluctuations in market price. He’s coined something called the ‘moat’, which is an aspect of a company which gives it protection from other companies wishing to take a share of the market.
If a company fits all of the above credentials, then it is ripe for investing.
So how can we, the cryptocurrency investors benefit from this approach? With ease.
The sheer volume of companies starting up in this industry means that there are almost too many to be accurately analysed by other investors – and a such, we have a wealth of information available in an environment where Wall Street hasn’t yet taken a strong foothold. There’s room to find the gems that fit the above criteria, and that others have yet to stumble upon, if we look hard enough.