2 Of Warren Buffett’s Favourite Moves That You Can Easily Follow

Warren Buffett is widely recognized as one of the most successful investors in history. As the Chairman and Chief Executive Officer of Berkshire Hathaway Inc., Buffett has led Berkshire to achieve a compounded annual growth rate of 20% in its book value over close to 50 years.

Buffett’s years of investing experience may be hard for the private investor to follow. But I would like to share two of his favoured actions which the Foolish investor can easily follow, without having to possess Buffett-level intellect.

Wait for the Right Idea

In his 1987 letter to Berkshire shareholders, Buffett described the characteristics of the affable Mr. Market. As you may know, Mr. Market is a well-known fictional character in the world of investing which was introduced by Buffett’s mentor, Ben Graham.

This fictional character was also a very obliging fellow who would give you a price for each share every day. For this instance, Buffett had this insight to share:

“Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option.

Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you.”

Citing a comparison with American baseball, Buffett went on to describe investing as the act of Mr. Market pitching you ideas every day – like a baseball. And it is entirely up to you when you want to swing your bat. There’s no need for any special investing knowledge to do that, and in fact, the Foolish investor is simply asked for only one thing: Patience.

If we forget patience, then we may – as Buffett would put it – let Mr. Market guide us to all the wrong companies. That’s one thing we may want to avoid.

The “Too hard” pile

If there is another action that Buffett and his business partner Charlie Munger does the most, it is this: Tossing the majority of ideas into the “too hard” pile.

As the name implies, that is where the investing maestros will toss most of the ideas which they deem to be too hard to understand or which come from areas where they do not have an edge.

Inherently, the act of avoiding most of the difficult ideas means only settling for the easier ideas, or the best companies out there. This is arguably Buffett’s favorite investing action.

In this sense, if you don’t have a strong level of knowledge in the oil and gas industry, then perhaps companies like rig builder Keppel Corporation Limited (SGX: BN4) or jack-up rig provider Ezion (SGX: 5ME) should be avoided despite the recent drastic fall in their share prices.

Our interests may be better served in areas where we have better knowledge. Again, the act of avoiding areas where we have less knowledge is well within our reach as Foolish investors.

Foolish take-away

The value of patience cannot be emphasized more. It does not require additional knowledge from an investor as it is just plain old waiting-around-for-good-businesses-to-appreciate-with-time. In all, a particular quote from Munger is a good one to close this article:

I couldn’t agree more. In my opinion, it is important to pick the company which you would like to own, and wait for the share prices to come to you. Fool on! Read more about investing and get more investing tips and tricks, FREESign up here to The Motley Fool Singapore’s weekly investing newsletter, Take Stock Singapore.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.Motley Fool Singapore contributor Chin Hui Leong owns shares in Berkshire Hathaway.