4 Investing Lessons From Warren Buffett

VIDEO: What can Gen Z learn from a veteran investor and value investing? 

Maximillian Loth 19 August, 2021 | 10:47AM
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Maximillian Loth: Hello my name is Max and I am an International Business Graduate and Morningstar Intern.

Everyone of us heard of the recent miraculous stock price developments like for example GameStop or Tesla. These success stories electrify investors and increase their willingness to take risks.

But I want to highlight in this video a different investment strategy than meme stocks, which is called value investing. Developed by Benjamin Graham and applied by investment guru Warren Buffet and his right-hand man Charlie Munger, value investing aims to achieve long-term sustainable returns.

But why should young investors like me in their early 20s follow this strategy?

The value investing methodology is simple but not easy and follows four principles:

  1. Treat a share of stock as a proportional ownership of a business, meaning only buy a share if you fully understand the business model of the firm
  2. Buy at a significant discount to intrinsic value to create a margin of safety, in other words, only buy at a market price below the intrinsic value to have a buffer for human error, misfortune or extreme volatility
  3. Make Mr. Market your servant rather than your master: Mr. Market is a metaphor for the volatile capital market that can sell at a bargain price or exaggerate the value of a stock. In the long run, this fluctuation will be corrected and therefore can be tolerated
  4. Be rational, objective, and dispassionate: This is your major protection against making emotional errors

Wrapping it up, value investing is a time-consuming and work intense investment strategy, but it facilitates long-term sustainable above-market returns at a comparably low risk level and also benefits from the power of compounding.

With this in mind, any investor should consider this strategy and should watch out to not be blinded by success stories like GameStop, because only a few benefit from the right market timing and we should rather remember: Time in the market beats market timing.

For Morningstar, I'm Maximillian Loth 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Maximillian Loth  Maximillian Loth is an intern at Morningstar Switzerland