Question

1)Explain what is the essence of Warren Buffett’s investment philosophy?

2)How to invest like Warren Buffet?

3)How do behavioral finance and technical analysis affect one another?

Answer 1

1. Warrent Buffett's investment philosophy-

A. Investment should be done in what you understand, never make investments in a business that you cannot understand. There must be a clear understanding of money making strategies of a company.

B. Invest in companies who have long term opportunities and continuos growth.

C. Investment should be done that generate high or stable returns.

D. Concentrating oo high quality business as this would have increase in the business value over time.

2. Warren Buffet uses a qualitative approach while making investments.

A. Analysing the business first, and not tthe market.

B. Grabing a consistent operating history of businesa.

C. To understand the long term aspects of the business.

D. Focusing on return on equity rather on earning per share.

E. Looking for high profit margins and low leverge companies.

F. Focussing on the long term returns and ignore short term market volatility.

3. Behaviour finance studies the decision making process of investors, financial institutions, and corporates while dealing with the financial market. These investors, financial institutions are influenced by cognitive biases. It studies the cognitive, social and cultural, emotional, psychological factors of market participants.

Technical analysis measure the stock price movements through technical indicators such as charts, trends, resistance and support. It measures the volatility of your financial instruments which attempts to forecast prices bu evaluating past price movements.