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Creating a Portfolio Like Warren Buffett: A High-Return Investment Strategy by Jeeva Ramaswamy

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CHAPTER 2

Business-Like Investing

If you buy a stock in a business believing that you are a part owner of that company, you behave differently from the stock market crowd. The vast majority of stock market investors believe that the stock exchange is like a big casino and stocks are entry tickets to play the game.

The buying and selling decisions of many investors are totally price myopic and have nothing to do with company fundamentals. They try to predict what the price of the stock will do in a short time and try to profit from that price swing. They think they are investors, but in reality they are traders. They try to predict what the market will do during the short term and buy or sell their holdings depending on those market predictions. Predicting the market is impossible. History proves that “predicting” the stock market simply does not pay off. Still, traders spend tremendous amounts of time and energy trying to do just that.

During the year’s end, you can see market gurus and hedge fund managers try to predict the market for the next year. You can go and look back at their predictions for previous years and find out what really happened, and you will find 90 percent of those predictions were wrong. The other 10 percent may be right, but that is because of pure luck, nothing else.

Whenever those market pundits are very bullish on the market, the market actually tanks. Whenever they are worried about the world coming to an end, the opposite happens. For example, just go ...

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