How to choose long-term investments: 6 stocks from Warren Buffett's portfolio / Sudo Null IT News

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Warren Buffett is one of the most famous and respected investors in the world. One of the key elements of his approach to investing is called value investing - it involves finding undervalued stocks. Today we will talk about how exactly the famous investor chooses such shares, and we will give several examples of shares of specific companies in the American market.

How to approach choosing long-term investments

When choosing long-term investment options, Buffett uses the following parameters:

Price/Book (P/B) is the ratio of the market value of shares and the current net asset value (Net Asset), minus all expenses for immediate liquidation.
Price/Earnings (P/E) is the ratio of the market value of a share to the annual profit received per share.
Return on equity (ROE) is net profit compared to the organization's equity capital.
dividends – whether the company pays dividends to shareholders.

Buffett also looks for companies that have so-called "economic moats" - barriers that will become a serious obstacle to competitors seeking to force the company out of the market and win its share.
The Investopedia portal has compiled a list of 6 stocks that are in Warren Buffett's long-term portfolio.

The most popular types of investment strategies

A strategy can combine several ideas at once. And if there are several goals, then the actions for different portfolios may be different. In general, there are several investment methods that are used by investors around the world.

Source: Gazprombank Investments service

Burlington Northern Santa Fe Corp.

Buffett has so much faith in the rail freight operator that he invested $34 billion in it. The company owns or leases 310,000 km of railroad tracks in the United States and Canada.
The company transports virtually all goods found in the modern economy, from consumer goods to cars, oil and coal. Such companies have a hard time surviving economic downturns, but are especially promising in the period immediately following a recession. When economic activity picks up after a recession, transport companies are the first to benefit. Burlington Northern also has a P/E below the market average and pays a 2% dividend yield.

Debt Investments - Bonds

Firstly, money can be lent. This situation is represented by the bond market - debt securities. In this case, the investor's income can consist of fixed coupon payments, most often once or twice a year, or in the form of the difference between the purchase and redemption prices - discount bonds.

Borrowers for this type of securities can be companies or the state.

Trading volume by instruments on the Moscow Exchange for 2022, billion rubles

ConocoPhillips

An NYSE-listed energy company that is involved in projects in the oil and gas industry.
ConocoPhillips does everything from drilling wells to refining oil and selling end products like gasoline and natural gas. The fall in oil prices seriously hit the company's share price, but in 2009, amid the global recession, ConocoPhillips was already going through this. Then the shares soared from $28.4 per share to more than $85 in a few years. Among other advantages, the company has been paying dividends at 4% in recent years.

Why you need to invest

Savings in hand make many people think about increasing them. Keeping money in a safe at home is not very profitable, because inflation can eat it up. Now is also not the best time to make deposits, since interest rates on them continue to fall following the key rate of the Central Bank. Naturally, in these conditions, the interest of Russians in stock market instruments is growing: according to the Moscow Exchange, currently in Russia 7 million private investors have access to the trading platform.

With investments you can:

protect savings from inflation;
get additional income;
create a safety net and gain financial freedom.

Before you start investing, decide on your financial goals. At this stage, it is important to prioritize and evaluate the cost of your desires.

Costco

A famous US operator of discount stores, where customers can buy everything from food to household goods in large packages, and for this they need to issue a special card.
Costco management has been working for many years to maximize profitability and offer customers the best prices. As a result, the brand is extremely popular in the US, and Costco fans can zealously argue that the cost of the membership card is “worth it” in one grocery trip. And yet, the money for the cards sold is the company’s net profit.

Why invest and how to start doing it

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Procter & Gamble

It's safe to say that virtually every home in developed countries (and many developing countries) has Procter & Gamble (PG) products.
The company's portfolio of brands includes: Tide, Bounty, Pampers, Head & Shoulders, Gillette, Olay, Crest, Oral-B, Dawn, Downy and Duracell. The company's long-term strategy is to be present only in markets where it can gain the largest share or become a second player, but not lower. Having a leading position allows the company to regularly raise prices so as not to reduce income even in a situation of increasing production costs.

What is an investment strategy

An investment strategy is a plan by which an investor buys and sells securities. It includes the purpose of the investment, its time period, the choice of instruments and the rules for buying or selling them.

This is a detailed action plan that helps:

do not make impulsive actions and rash transactions;
understand how to act when markets are falling or rising;
choose which securities to buy and which to sell;
predict approximate profitability based on quote history;
consciously make your own decisions, and not copy transactions of other investors or recommendations of dubious telegram channels.

Following the strategy reduces the risk of losses and allows investors to manage their portfolio rationally.

The types of investments on the stock exchange do not include

Separately, it is worth noting that currency transactions do not apply to investments on the stock exchange. Indeed, money is money, no matter what currency it is denominated in. It is generally accepted that changes in exchange rates are primarily related to interest rates. An exception to this rule is derivatives, futures and options on currencies, which are considered full-fledged financial instruments for investment, but are intended for professionals, as they involve serious risks.