The value of simplicity
Academics and professionals get bogged down with overanalyzing data simply because they have the skills and the data is available, Buffett told Goodman.
“As a friend of mine says, to a man with a hammer everything looks like a nail. And once you have these skills, you just are dying to utilize them in some way. But they aren’t important,” he said.
Since the interview, the amount of data available to the average investor has exploded.
In fact, ordinary investors even have access to tools such as Quiver Quantitative, which shows the stocks members of Congress are buying or selling, Insider Tracking, which follows the trades of corporate insiders and SkyFi, which offers investors satellite imagery.
This niche data might be useful in some cases, but it can also overcomplicate your investment strategy. Instead, most investors should consider Buffett’s relatively straightforward approach.
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Learn MoreApplying the Buffett approach
According to Buffett, investing isn’t a complicated data science experiment but a relatively simple business deal.
“If I were being asked to participate in a business opportunity, would it make any difference to me whether I bought it on a Tuesday or a Saturday or an election year or something?,” he asked Goodman. “It’s not what a businessman thinks about in buying businesses. So why think about it when buying stocks? Because stocks are just pieces of businesses.”
To apply Buffett’s bottom-up approach, consider the merits and fundamentals of the business underlying each stock. Take the time to understand what the company produces and how it makes money.
For instance, if Nvidia stock were on your radar, it might be a good idea to learn about their semiconductor business and how demand is impacted by the rise of artificial intelligence software. It could also be worth considering products in their pipeline, such as the Blackwell Superchip, and its potential impact on the business's future.
The next step would be to examine the company’s fundamentals. A good product or service isn’t necessarily a good investment if the company is struggling to generate profit or cash flow. A track record of safe and consistent dividend payments could suggest that the underlying business is healthy and lucrative enough to reward shareholders.
PepsiCo, for example, has consistently raised its quarterly dividends for 53 years.
The final step is valuation. As Buffett once said, “Price is what you pay; value is what you get.”
In other words, even an excellent business isn’t a good investment if you pay too much for it. With this in mind, consider valuation metrics such as the price-to-earnings (PE) ratio or price-to-free-cash-flow multiples to ensure you’re getting a good deal.
Google’s parent company, Alphabet, currently trades at a PE multiple of 20.5, which is noticeably lower than its peers, Meta and Amazon, which are currently trading at PE ratios of 28 and 35 respectively.
By focusing on relatively cheap companies with robust financials and great products, you too can implement Buffett’s simple investing approach. No fancy data analysis necessary.
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