The Warren Buffett mantra: How experts invest in an uncertain climate

This year we celebrated the 30<sup>th anniversary of the "Big Bang", the name used for describing the sudden deregulation of the UK financial markets by Prime Minister Margaret Thatcher in 1986.

The revolution saw the abolishment of minimum fixed commissions on trades, doing away with the distinction between stock jobbers and stockbrokers on the London Stock Exchange (LSE), the transition from open-outcry to electronic, screen-based trading and allowing foreign firms to buy UK brokers.

The immediate effect was the spike in the trading volumes, which rose to $7.4bn (£6bn, €6.6bn) in the week after the Big Bang compared with the $4.5bn seen a week prior. The other notable effect was the rise in income shares of the top earners.

As per a VoxEU study, five years after the Big Bang, the effect on the top decile was an increase of 20% in the UK, while the top percentile increased by almost 30%.

In the post-Big Bang period, brokers, jobbers and merchant banks started merging and the work culture changed dramatically – hours worked were longer, lunchtimes shorter and as noted above incomes rose, as individual investors also came into their own.

'New normal' of negative rates and aggregate demand deficiency

That was then, this is now – an unprecedented era with interest rates across the advanced world being either near zero or negative. The macroclimate is accompanied by anaemic growth across the globe as the slow pace of the economic rebalancing in China has left the global economy in the state of aggregate demand deficiency.

With increasing signs of central bank exhaustion, the switch from "Monetarism" to "Fiscalism" looks inevitable. This does not mean that the central banks would hike rates, but only points to a new normal of extremely low interest rates and fiscal stimulus.

Plunging commodity prices are a part of the new normal as well despite the recovery seen since February this year. This again could be blamed on the slow rebalancing in China and the resulting slowdown in the global economy. Furthermore, the recent improvement in China has been driven by credit, which marks a reversal of the rebalancing process. That is bad news for commodities and world economy in general since the more the delay in rebalancing the more is the threat of China exporting deflation across the globe.

That's not all; there is plenty of political uncertainty across Europe and in the US. American citizens will vote for a new president next week, and it will be about voting for the one who is less "worse". Going forward, there are plenty of political risks across the eurozone. Meanwhile, the uncertainty surrounding Brexit negotiations is here to stay for a long time.

Turning to Warren Buffett's trading philosophy

According to the investing legend Warren Buffett, a set of rules needs to be followed for investing success.

Ignore the macro issues and focus on the micro. The larger trends in the markets are external to a business, and an investor should concentrate more on what affects the business more.

It is important to take into consideration the management of a particular business, after all, it is the leader that guides the business and shareholder value.

Think independently. As Warren Buffet says, Wall Street is the only place where people go in a Rolls-Royce to get advice from people who take the subway. It is essentially to be able to think independently and filter out the noise.

Ignore the short-term predictions, and the stock market forecasts. Concentrate on building a zone of expertise and operate within the zone. You'll miss opportunities and face losses for a few of your picks, but stick to the system you developed for yourself, you'll still see benefits in the long term.

What makes a good investor?

Let's take a look at the top principles which distinguish top investors from retail investors. Here's a quick list:

• A person with the ability to ignore the wild swings in the market place
• An avid reader. Read, and then read some more.
• Learning from others' mistakes
• Simplicity over complexity – When investing keep it simple
• Make your own investment decisions – Don't listen to brokers, analysts or pundits
• Maintain proper temperament
• Patience is the key – Think 10 years and not 10 minutes
• Invest in businesses and not stocks – The idea is to pick the right businesses and leave the stock market uncertainty for others
• Search for companies that are franchisees – They add a moat of security for investors
• Buy boring – Invest in businesses which have been around for 50 years rather than risking everything for rockets
• Avoid Noah's Ark style of investing – Ignore investing in a little bit of this and that, and rather concentrate on investing a higher proportion of your money into a smaller number of investments
• There are times when doing nothing is a sign of investing brilliance
• Ignore the ticker – Look at closing prices weekly rather than continuously monitoring the ticker
• Remember, downturns in markets are buying opportunities

These are some of the principles that helped Warren Buffet become one of the greatest investors, and if followed loyally, can help you become one of the biggest investors in the markets.

Nick "The Moose" Batsford, the founder of Tip TV, is a well-known and respected former City trader, with more than 25 years' experience in market trading and broking and a specialisation in short-term trading signals. Prior to setting up Tip TV, Batsford worked for various trading and brokerage companies, and eventually managed a hedge fund in London.