Warren Buffet has been inspired by several books and amongst his favorites are Security Analysis, A guide to Intelligent Investor and The Wealth of Nations. These three books are renowned within the world of investment and offer sound advice on investment. The principles enshrined in these books are also reflected in the investment strategy adopted by famous value investors.
“A guide to Intelligent Investor” is written by none other than Benjamin Graham who is considered to be the mentor of Buffet. The principles laid in this book focused on reducing the common mistakes made by investors and highlighted the two different types of investors. The enterprising investor strategy is the one adopted by Buffet whereby the investment portfolio is based on rigorous study and research. The book highlights that an enterprising investor must base his investment on research and this principle is repeatedly highlighted by Warren Buffet who invest in companies that he has analyzed in depth. Furthermore, the “Mr. Market” concept introduced in the book is also applied by Warren Buffet when undertaking investment as he believes that a person must not follow the market trends and norms. Rather he believes that an in depth analysis must be done and irrespective of continuous volatility of the market price, an investor must continue to retain stocks if he believes that they would provide sufficient gains over a period of time.
Another book that has greatly shaped Warren Buffet’s investment strategy is “Security Analysis” which is once again written by the mentor and idol of Buffet namely Benjamin Graham. Security Analysis focuses on valuing the stocks based on the ability of the firm to generate the cash and the book is famous for its concept “the margin of safety”. These concepts are once again reflected in the investment strategy adopted by Warren Buffet as he calculates the intrinsic value of the stock through the net present value of the cash inflows over the period of investment. The book states that an investor must keep a certain margin of safety and therefore invest in undervalued stocks. This principle is at the core heart of the investment strategy adopted by Warren Buffet whereby he believes that an investor must always invest in stocks that are undervalued so that gains could be realized when the market value truly reflects the real value of stocks.
“The Wealth of Nations” is another favorite book of Warren Buffet that is largely based on economic theory and the pursuit of freedom. The principles within these books are not directly reflected in the investment strategy adopted by Buffet but they are nevertheless present in some form or the other. For example, freedom of choice is highlighted by the author and this is reflected in the investment strategy adopted by Warren Buffet. Warren Buffet states that a person must not come under peer pressure or any other influence when making his investment decisions and must be free to pursue the investment that is regarded as sound by self study.