[Music] hi IBD I'm Meredith hyon this is IBD explains thanks so much for joining me Berkshire Hathaway chairman and CEO Warren Buffet is known as one of the most accomplished investors ever but some of the tenants of Buffett success May differ from the IBD methodology joining me to compare and contrast ibd's teaching with that of Warren Buffett is IBD markets reporter Justin neelson hey Justin thanks so much for joining me thanks for having me Meredith absolutely all right so let's learn how to do things just like Warren and you know how to stick with what
IBD already tells us so when it comes to investing how are the lessons from IBD and Warren Buffet the same well I think number one and you know a lot of the IBD tenants came from Bill O'Neal the founder of Investors Business Daily and I had the pleasure of working as his assistant for 15 years so I definitely know backwards and forwards bills thinking on things which again launched the IBD methodology but for Warren Buffett you know we kind of have to go more from books interviews and those birkshire Hathaway stockholder meetings and great letters
that he writes which has been over years one of the things that I think they both have in common a big thing and I find this across a lot of the best investors of uh all time risk management risk management is such a key concept for both of them for Bill O'neal He often said you know keeping losses small was rule number one he had the 7% 8% stoploss from the purchase price as a rule that he just never wanted to see broken now Warren Buffett he infamously has said there are two rules to investing
number one don't lose money number two don't forget rule number one so you can see both guys had a very big uh belief in that a huge part of investing was to not lose lose too much money it's going to happen but you want to be keeping your losses small whenever possible and this is what allows you to keep on playing the game because as we'll discuss a little bit later longevity matters you know there's there's a couple parts to it right there is the protecting Capital you know you don't want to put more money
into things that aren't working I mean Bill O'Neal a lot of times said look I'm not going to average down because I don't want to be writing something and in case I'm wrong uh have an issue where I I'm putting more money after you know bad money really now for Buffett he really kind of looked uh whereas O'Neal maybe looked a little bit more at the stock chart to kind of tell him that information Buffett would really look at the fundamentals of the company he would be reading the story of uh how how the company
was doing the financial reports specifically the footnotes and so his risk management style although a little bit different he was kind of coming up with this Mar what he called the margin of safety where he was making sure that the value that he was buying the company at that stock price that he was buying the company at was worth uh a little bit more than what he was paying you know that the company had extra assets or things that maybe weren't being valued properly and so that margin uh kind of let him have that risk
management where he knew that he wasn't going to get too hurt on something because he really knew the fundamentals of the company very well so we have the similarities how are what IBD teaches different than Warren Buffett's approach well that Buffett approach of really kind of digging deep into the fundamentals um both O'Neal and Buffett believe in fundamentals you know but O'Neal was more on the growth side whereas Buffett was looking for those concepts of value that he could find O'Neal was really looking for those companies that were Growers that they were having these phenomenal
earnings growth records and that they were doing something so different changing the way that we work that the way that we live the way that we play and so he was really kind of looking for those that would entice more people to buy into the company because of what it was doing because of how it was growing now whereas Buffett might be very big on the dividend payers you know he really liked those those cash cows and that's why he's got so many insurance companies they just produce a lot of cash and then he can
use that cash to sometimes buy companies outright O'Neal believed that a lot of times those growth companies it was okay that they weren't paying a dividend because they were reinvesting in themselves for that expansion phase and those expansion phases could be very lucrative but also short-lived so that was one of the things whereas I would say O'Neal's longest holding was a pick and save investment that he had in the 70s over seven and a half years Buffett on the other hand he's had some Investments for decades but there is also some flexibility to figure out
which approach it works best for you as an investor there are different roads that can lead to the same kind of Warren Buffet success right Justin absolutely whether you do it through growth whether you do it through value um there's a lot of different ways and I mean if you read some of the best traders of all time you find that they have different ways of getting there but I would say be very cognizant of those similarities that biggest one is that risk management Factor being very careful to protect yourself from taking big losses because
longevity matters you got to think about that power of compounding and look Buffett he's over 90 now Bill O'neal He lived to be 90 so they had both of them 70 years of investing uh and compounding over that kind of period of time can really make a big difference in building a fortune now the other lever for compounding is performance and both men had very good performance as well uh so being able to do that over time is is phenomenal so those are the two levers you have to work for uh and the longevity is
one of those things that I mean we can control that a little bit better than our performance and by longevity I just mean that you're controlling your risks to the point where you're not going to be out of the game because we've seen too many of these cases um and you can go back through history where people blow up their accounts they're out of the game and then they can never come back from it but if you can keep your losses small keep your draw down small then you always live to fight another day what
are some examples of some of Buffett's biggest wins you got to remember that one of the things that does uh make Buffett a little bit different you know not something that everyone can do is sometimes he's buying companies outright and that was the case of C's candies uh he bought that company outright and that was a big winner for him he's also had uh investments in things like Coca-Cola over decades um American Express he got that at kind of a discount when there was a big scandal going on um and so he he got that
at a discount and held on to that for a long time and then of course there's Geico he got a lesson from Benjamin Graham the the famed value investor uh very early on in his career and it really turned him on to Insurance products Berkshire Hathaway itself while the name is synonymous with Warren Buffett the investment itself in Berkshire hathway wasn't a great one it was a textile company and you know the way I've heard the story Buffett was kind of going in for Revenge because he got swindled by the CEO so he took the
company over to basically get that CEO out um but it ended up being one of those things that ended up being very costly for him now of course uh he eventually sold that textile business and kept the name Burkshire Hathaway as a holding company for all of these companies that he's uh you know created or bought into over the years um so you know it's a mixed bag you know birkshire hathway itself is a a great uh stock story of success but the company the textile company certainly didn't start out that way so Justin all
in all what would you say is the most important lesson for waren Buffett that active growth investors can use to become more successful in their trading well even though Warren Buffett's style is very different from what most active growth investors would use I think one of the things that you could learn from Warren Buffett is again not to sound like a broken record here but paying attention to that risk management side of things uh not letting small losses turn into big losses his concept of don't lose money don't forget rule number one you know all
of these things this is something that is not singular to Warren Buffett this is something that I've seen across a lot of different Traders across a lot of different disciplines and styles but this is part of what makes them great and also I think it's having that discipline um you know a routine that you go through and rules that you follow so that you're not just using emot to make your investing decisions but you're using cold hard facts as much as possible to counter those emotions because let's face it investing can be a very emotional
game your hard-earned money is is going up and down and fluctuating so you have to have things to kind of counteract those emotions rules and discipline are the best things and I think Warren Buffett is a great example of someone who's applied rules and discipline throughout his life all right Justin very valuable lessons thanks so much for joining me this is IBD expl I'm Meredith hyon thanks so much for watching IBD we'll see you next time
