Invest Like Warren Buffett

I started my career in finance on the trading floor at the New York Futures Exchange (NYFE) in 1983, which was a subsidiary of the New York Stock Exchange (NYSE) that was right next door.

Now, the NYFE was a futures market that gave investors the opportunity to trade the whole market by buying or selling a futures contract.

In other words, investors like you and me didn’t have to worry about timing the market’s direction, losing money because the stocks we picked went down.

Keep in mind, this was back in the early 1980s… before index funds were popular and ETFs were created. The NYSE thought it had a gold mine on its hands, as investors and traders would swarm to this new exchange.

Unfortunately, it didn’t work out that way…

The Chicago Mercantile Exchange started trading S&P 500 futures, and the rest is history. They became the most popular and most traded of any futures index.

I became a “local” on the NYFE — that is, a trader who stands in the trading pits and trades for his or her own account.

But because most locals are not well funded, our only strategy is to “scalp” the market.

In other words, I traded on very small fluctuations in price.

Holding periods were measured in minutes, and the longest position among us spanned an hour… maybe.

Truth is, I wasn’t very good at quick trading on a minute-by-minute basis, so I decided to take a different approach: I became a long-term investor.

Yet in order to be a long-term or hourly trader, you have to have a concrete opinion on the direction of the market.

Between us, I honestly had no clue which way the market was heading. However, I did notice that long-term traders were constantly fiddling with price charts.

One trader was kind enough to direct me to a classic on the subject, Technical Analysis of Stock Trends by Robert Edwards and John Magee, published in 1948.

It was an old, dusty book… and expensive.

So I naturally assumed it had to be good.

I couldn’t have been more wrong.

I spent the next several days reading every page of the book. It was filled with charts and descriptions of chart formations, as well as how to identify them. Head and shoulder formations, rounding tops and bottoms, and symmetrical triangles — you name it!

It wasn’t long before I started seeing charting formations on anything that had a line chart.

A Different Investor Approach

Years later I read that Warren Buffett also tried using charting prior to learning about value investing. Buffett explained, “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer.”

When Buffett first read Benjamin Graham’s book The Intelligent Investor, he stopped using technical analysis and quickly changed his own investment approach.

You see, Graham’s approach is both rational and logical.

Forget stock price patterns, flamboyantly named formations, and the rest. Graham’s approach lets you view stocks as a business, buying only when there is a margin of safety, and gives you the proper mental attitude toward market fluctuations.

It undoubtedly made me a much more successful investor — and I know it’ll do the same for you, too!

Here’s what it all boils down to for us: we’re buying stocks that technical traders would never consider.

And the stocks we select are usually trading under a cloud and are unloved and unwanted by Wall Street.

In fact, even if those stocks have disappointed in their latest earnings report or were attacked in the media for one reason or another, we wanted to take advantage of the irrational sellers.

When I recommended TJX Companies (NYSE: TJX) to my readers, it was getting hammered, with every chartist and technician looking to short it.

Instead, we recognized that the business was worth much more than it was trading for.

In other words, the market goofed on this and was offering it to my readers and me for pennies on the dollar.

We bought it around $18 a share, then sat back and waited for the stock price to catch up to the worth of the business. 

Today it trades for around $74 — a gain of 301.9%.

Those are the opportunities you should be looking for… trust me.

Don’t worry, you wouldn’t be alone in your search, either.

In the coming days and weeks, I’m going to show you just how simple Warren Buffett’s approach is for everyday investors like us.

All my best,

Charles Mizrahi

Twitter: @IWPeditor

Charles cut his chops on the trading floor of the New York Futures Exchange before moving on to become a wildly successful money manager on Wall Street.

And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball, compiling an amazing record of success and posting gain after gain for his loyal readers. He is the editor of Park Avenue Investment Club and the Insider Alert newsletters.

Charles is also the author of the highly acclaimed book, Getting Started in Value Investing.