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What Stocks does Warren Buffett Buy


									                    What Stocks does Warren Buffett Buy?
Warren Buffett once said "I've worked in an economy that rewards someone who saves
lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes
from parents, but rewards those who can detect the mispricing of securities with sums
reaching into the billions."
Therefore Buffet buys mispriced stocks. That is, stocks at a discount (when it is marked
How then do stocks become mispriced?

                               Imagine that the price of a good stock has risen significantly.
                                With the significant increase in price, groups of investors
                               holding that stock, after seeing a profit start to sell to seal
                               in their profits. Suppose that the selling is significant
                               enough that the stock price begins to fall...Other investors
                               already holding the stock notice that price has started to fall
                               and they are now pressured to sell as well because in their
                               mind they fear they will lose more profits if they waited. This
                               adds further to the bout of selling, which in turn causes
                               further declines in the stock price. This is a downward spiral.

All these decline in the stock price happening while the strength in underlying business of
the stock (for example Coca Cola) remains the same. The company remains to make a lot
of cash. Therefore, the decline in prices is NOT caused by the company suddenly doing
poorly nor because the economics of the business has changed but because profit taking
started prompting others to also start taking profits. Even though there is nothing wrong
with the business, human nature kicks in (fear of loss) causing prices to fall. This is
MISPRICING in the form of a discount.

As Warren Buffet puts it in a quote " Whether we're talking about socks or stocks, I like
buying quality merchandise when it is marked down". And you should buy discounted good
stocks too.

I hope this helps.

By: Jayson Flores

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