Investment Basics: Myths About The Stock Market How Following Warren Buffett May Make You End Up Broke!

1342 words - 5 pages

Wouldn't it be nice if Warren Buffett or even the great Benjamin Graham suddenly decided to divulge their secret "investment technique" that have made them two of the most revered and successful people in the investing business? Maybe if we recited the steps of the technique like a mantra before going to bed and practiced them diligently for a few hours every day, we would be able to obtain great wealth from the stock market.However, the truth is that there is no one-size-fits-all great investment secret out there for the stock market enthusiast. Many people have the notion that there is a specific method that if they followed rigorously, would bring them instant riches in the stock market .This is most certainly not true. Depending on the size and value of the portfolio, there will be different methods to go about doing business.For this purpose, it would be good to debunk some of the common myths about the stock market:1. Just follow what Warren Buffett buys!Some people tend to have the misconception that if they knew some of the stocks that investing greats like Warren Buffett was purchasing or even futures that George Soros* was trading in and bought the same shares/bonds/options, they could instantly make money. This could not be further from the truth. Firstly, some of the shares that Warren Buffett owns are public information. Almost everybody in the industry knows that Warren Buffett owns shares in companies like Coca-cola, Hershey's and Gillette.However if we were to jump into the bandwagon and purchase all the shares that we could of these three companies, there would still be a major difference between the value of our shares and that of Warren Buffett's, namely the price that we bought the shares for. Price is everything. Warren Buffett purchased Coca-cola, Hershey's and Gillette years, years and years ago. Since then, all three of them have appreciated tremendously in value. Presently, the prices of these shares have stabilized and we most likely won't be able to achieve the same returns.Additionally, Warren Buffett seeks to invest as much as it's legal in a company if he thinks it has potential. After all, why not? Warren Buffett sees no sense in timid, tentative investing if he has done the maths and is certain that the company is a good bargain. Warren Buffett's insurance company, Berkshire Hathaway has huge holdings in companies that they invest in. With reference to its 2004 third quarter shareholder's report, Berkshire Hathaway has invested US$ 8.01 billion worth of equities securities in Coca-cola. An average investor wouldn't be able to match the investing capabilities with such a cash rich company as Berkshire Hathaway.One other important thing to note is that we may know when Warren Buffett bought shares, but we may not know when he sees fit to sell them off. In the past, Warren Buffett is famous for buying Walt Disney's shares and then quietly unloading them, selling the last of his 74 million Disney shares in year 2000...

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