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Are you a Warren Buffett fan?: Food for thought

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Are you a Warren Buffett fan? Do you follow his investor philosophy and what he preaches via his letters to investor. We came across a very interesting article by James Altucher  (an american hedge fund manager , entrepreneur , and also author of the book Trade like Warren Buffett). He makes some very interesting comment on Warren Buffett going as far as to say that Buffett doesn’t practice what he preaches. To quote from the article:

Stocks forever. But it’s because of this “Grandpa” image that he’s able to say things to people like they should “buy and hold stocks forever” and people listen to him. Of course he wants you to hold a stock forever. Let’s say he owns the same stock as you. You own 10,000 shares and he owns 20 million shares. If things start to go down with that company you have an enormous advantage over Buffett. You can sell in one day, in one trade even. It might take him months to sell. Buffett does not buy and hold stocks forever. Just in the past six months alone he’s sold hundreds of millions worth of Kraft Foods and Johnson & Johnson.” — Quote Ends.

One of the things not mentioned in the article, but something we would like to point out about one of the most common notion of Buffett’s investing philosophy on stocks: “Look at them like businesses”. What goes un-noticed about this statement is how it is possible for Buffett to look at them as businesses, he owns stocks in major chunks, he buys such huge stakes that if push comes to shove, its possible for him to influence the management because of his voting rights and representation on the board of the company. In many of his investments he has even been able to appoint a new and fitting CEO to fix the business! When you know this fact you know why is it possible for Buffett to look at stock like he would look at a business. Unfortunately, retail investors  are financially incapable to have that kind of influence on the management, in fact all retail investors combined have little say during regular voting for various resolutions during board meetings. Most of the investors go without exercising their rights altogether. One wonders how many of them are even aware of their voting rights. In such a scenario one should think twice before taking each of Buffett’s preaching at face value. Sure he gives great advice from time to time, but not all of them can be readily applied by the retail investor. Since the retail investor doesn’t have enough influence to effect changes like Buffett can, the only viable option for them (retail investors) is to exit such investments. Hence, they will be well advised to not blindly follow the “buy & hold” strategy advocated by Warren Buffett.

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