Buffet and Soros Habits 1-6

By: Tinaye Muzanya

My previous article titled “The uniqueness of Buffett and Soros” looked at the strategies applied by these two master investors, how they view the market and we came to the realisation that their strategy is unique and suitable only to them. In this article l will look at the habit or the similarities that Buffett and Soros share.

Habit 1: Preserve capital

Preservation of capital is the first and most important rule for Buffett and Soros. Warren Buffett’s first rule is “Never lose money” his second is “Never to forget rule number one”. Soros in his book Soros on Soros, he wrote, “Survive first and make money afterwards”. These two investors are not great because of the amount of money they have made but because of how they have avoided making losses. “Preservation of capital isn’t just the first winning investment habit. It’s the foundation of all the other practise the master investor(Buffett and Soros) brings to the investment marketplace, the cornerstone of his entire investment strategy. (Tier, 2006:24)”

Habit 2: Risk Averse 

As a result of habit Soros and Buffett are risk averse. They “think in terms of certainty and uncertainty, and they focus is on achieving certainty. They aren’t really “measuring risk” at all. They are measuring the probability of profits in their search for, as Warren Buffett puts it, “high probability events”.

Habit 3: Philosophy

Both Soros and Buffett have developed their own investment philosophy, which is an expression of their personality, abilities, knowledge, taste and objectives. Hence their trading strategies are different.

Habit 4: Do not believe in diversification

 “One of the fictions of investing is that diversification is a key to attaining great wealth. No true. Diversification can prevent you from losing money, but no one ever joined the billionaire’s club through a great diversification strategy. (Tier, 2006:84)” An example will be to have two portfolios. One portfolio is diversified between 100 shares and the other between 5 shares. If one of the stocks in the second portfolio rises by 20% in order for the first portfolio to match 20 stocks have to double in value. For Buffett and Soros “when the opportunity represents itself they buy enough to make a real difference to their wealth.” Tier, 2006:89)”

Habit 5: Focus on after tax return

Buffett doesn’t like paying dividends as result Berkshire Hathaway has only paid taxes once. The aim is not tax invade but its to avoid tax legally.

Habit 6: Invest in what you understand

Buffett was quoted in one of his letters to the shareholders , stating “The market, like the Lord, helps those who help themselves. Unlike the Lord, the market does not forgive those who know not what they do.” Many investors especially rookies have acted in hope that they are right not on understanding of the market. This is gambling at it has resulted in large amounts of money being lost to the market. Buffett and Soros always invest in what they understand. The first question they ask themselves is, “Why should I invest?.” If they do not understand they do not invest.