Warren Buffet's strategy is rooted in the influential writings of Philip A Fisher, especially his "Common Stocks & Uncommon Profits". Philip Fisher was an advocate of a long term investment strategy requiring in-depth and rigorous analysis of an enterprise, including profiles of executives and leading employees, financial history, and finding the unique strengths of the enterprise within it's sector.
Such a strategy is very labour intensive and not suited to lay investors who have small sums at their disposal. Imagine the effort required in analysing say thirty companies. As a small investor, probably working full time, you need to find a source of reliable information which will help you find shares that can make you money. In other words, you need to find a way to benefit from someone else's in depth knowledge.
But where do you turn to for the solid advice that can make you money on your small investment funds?
The get-rich-overnight schemes you can find all too easily on the internet and in the classified ads of the Sunday papers are risky. After all, who are these people? How on earth can you be sure they are genuine? They look prosperous and tanned as they lean on the bonnet of their four wheeled phallic symbol in their promotional material, but where did their money actually come from? Why would such a beacon of achievement need your £49.50?
What you need is a source of information that is as reliable as any source can be within reason. There are no infallible oracles out there, everyone knows that, but one of the best and least expensive may be lying next to you as you read this. It's your newspaper.
Every national newspaper employs seasoned commentators who make informed suggestions concerning the purchase or sale of publicly quoted shares. It is a simple exercise to test the ability of one city pundit or another in picking shares. Follow their suggestions for a period of time and make a note of what happened to the shares in the weeks and months following. If the share moved contrary to the direction suggested, find out if that was for a reason that no one could have been expected to predict.
How you capitalise on a pundit who scores a hit much more often than a miss is up to the approach you wish to adopt. How do you define a hit? Testing predictions long term is problematic. Five or ten years down the line, say, how much of the company is still there and how many of its executives have moved on to other places? In any case, as someone said, in the long term, we are all dead.
The best way to use pundits is in the chase for short term gains. Look for predictions for tommorow and next week, not for twenty years from now. The way to define a hit is whether a profit would have resulted in the days and weeks after the prediction, rather than months and years. In this way, buying and selling a share within a short time scale enables the small investor to make the most of good advice during the time frame when it means most. A pundit's advice goes stale and mouldy if left on the shelf.
Completing buys and sells within a short period also enables a small investor to benefit from the effect of a simple financial technique, namely the rapid turnover of their money. For example, an investor who bought and sold shares employing say, £2,000, once a fortnight for an average profit of 2% on each transaction for a year would make considerably more profit than the investor who bought shares at the start of the year for £2,000 and then sold them for 20% profit at the end of the year.
Why not try tracking a pundit in your favourite newspaper for a while to see if they could buy you a yacht?