One of the best-known investors of modern times is Warren Buffett. He is not famous without reason – he has an outstanding investment record. But what’s most interesting about him from my perspective as a private investor is how willing he is to share his approach.
Were I investing today for the first time, before I put any money into the stock market, I would get into one of Buffett’s habits.
How Buffett spends his day
That habit is reading. I do not mean reading a document or skimming something in the newspaper. I mean serious, concentrated reading of hundreds of pages each day.
In fact, here is how Buffett describes his working day: “I just sit in my office and read all day.” That may be a slight exaggeration – but I only think it is a slight one. After all, in another context Buffett told his audience: “Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest.” People who have travelled with Buffett tell of him sitting down on a plane, getting stuck into a pile of newspapers then reading for hour after hour.
How can reading help investment?
So, why does Buffett do all this reading? How does it help him when it comes to finding attractive shares to buy?
I think the answer involves at least three elements. First, I reckon Buffett is reading to get a general sense of how the economy is performing. By knowing what is happening in different parts of the economy at a high level, Buffett can spot emerging trends and possible investment themes.
Secondly, I think Buffett reads widely to improve the conceptual models he uses when investing. He does not just put money into what he thinks are attractive companies at random. Over decades, he has established his own model to identify companies in which he may invest. He has done this through learning from the writings of an investor such as Benjamin Graham and combining it with his own experience. Even in his 90s, Buffett seems still to be refining his investing model. Reading widely – especially contrary views – can be a good way to test one’s investment approach and improve it.
Finally, reading lets Buffett identify companies in which he wants to invest. When he finally invested in IBM, for example, it was after reading the company’s annual report regularly for half a century. The IBM stock purchase did not turn out to be one of Buffett’s better buys – but that certainly was not because he had not done his homework.
Applying this Warren Buffett habit
The thing I like about this habit is how easily I can apply it to my own investing choices. Reading up on shares has never been cheaper or easier, with most companies publishing all sorts of information freely on their websites.
Spending more time reading, absorbing and reflecting on what I have read could yield rewards. Setting aside more time to read regularly, the way Warren Buffett does, could help me improve my investment knowledge. That would hopefully boost my returns over time.