Discussion 2 – Warren Buffett’s Stock Rules

Discussion 2

Warren Buffett’s Stock Rules [WLOs: 2, 3] [CLOs: 1, 2, 4, 5, 6]

Warren Buffett’s Stock RulesPrior to beginning work on this discussion forum, read Chapter 15 in the Dhandho Investor text and Chapter 2 in the Outsiders. Then, watch the following videos Warren Buffet’s 6 Rules Of InvestingLinks to an external site., and Warren Buffett’s Most Iconic Interview EverLinks to an external site..

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The following are three quotes from Warren Buffet:

“Companies obtain the shareholder constituency they seeks and deserve. If they focus on short-term results or short-term stock market consequences, they will attract shareholders who focus on the same factors. And if they are cynical in their treatment of investors, eventually that cynicism is likely to be returned by the investment community.”

Warren Buffet, 1979.

“To obtain only high quality shareholders is no cinch. Anyone can buy any stock. Entering members of a shareholder club cannot be screened for intellectual capacity, emotional stability, moral sensitivity or acceptable dress. Shareholder eugenics therefore might appear to be a hopeless undertaking. In large part, however, we feel that high quality ownership can be attracted and maintained if we consistently communicate our business and ownership philosophy-along with no other conflicting messages-and then let self-selection follow its course.”

Warren Buffet, 1983.

“Through our policies and communications-our advertisements-we try to attract investors who understand our operations, attitudes and expectations. We want those who think of themselves as business owners and invest in companies with the intention of staying a long time. We want those who keep their eyes focused on the business results, not market prices.”

Warren Buffet, 1983.

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In Chapter 15, Pabrai explains when you should sell or hold on to a stock. He offers a set of rules he uses for selling a holding, whether it is winning or losing. This logic is based on Warren Buffett’s rule 1 and 2 (from the second video):

• Rule 1: Never lose money.
• Rule 2: Never forget Rule 1.

Combine your knowledge of Pabrai ‘s stock rules and Warren Buffett’s stock investments tips and explain your understanding of these two positions.

Explanation & Answer

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