Warren Buffett's 4-Step Investment Process (Copy it!)

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There's no shortage of videos on YouTube about Warren Buffett.

However, I do believe that the overwhelming majority of videos that cover Warren Buffett are not specific enough about how he went about getting rich.

Think about it. If you are crystal clear about how Warren Buffett got rich, then you can simply copy his methods and the same will happen for you.

And when I talk to friends and family that are in my life, along with reading comments on social media about how people talk about investing and trying to gain wealth, I am of the opinion that most people, and maybe even you, watching this video, do not really have a solid understanding of how to get wealthy.

I'm going to guess that it is most likely the case that you are jumping around, erratically consuming information from a bunch of different people, with no clear plan in place that you follow every day of every year of your life.

And just like building muscle in the gym, when it comes to building wealth you have to consistently show up every day to get any long term results.

And the bottom line is this: you only have one life, and your life is actually moving very fast.

And if you don't start doing the right things right now, then you better forget about trying to become wealthy.

So let’s get real clear, right now, about Warren Buffett and how he went about acquiring wealth.

Warren Buffett is known for giving lots of really great advice, but I believe, practically speaking, his advice on the importance of value investing is most pertinent to actual real world investors, people like you and me.

Perhaps one of his most famous and important quotes is “Price is what you pay, value is what you get”.

Basically, value investing in his framework is buying stocks that are undervalued by the market.

The key idea behind this is that the market price of the stock, in other words what it's trading for, is not really reflective of its true value.

Obviously, this means that you need to understand the difference between price and value. I think to most of our viewers this is probably obvious: the price of something is simply its advertised price, what you can buy it for from the person selling it, whereas value is what it's actually worth.
You can think about this in the context of real estate. A listing agent may list a home for sale at $500,000, so that’s its advertised price. But the value of that property could be different, it could be higher, or it could be lower.

We've mentioned before in some of our other videos that on our staff is a real estate appraiser, and he sees this all the time in his practice where a property will be marketed for sale or will be under contract for sale at one price and its actual true value is either above or below that price.

And this is where the investor, in this case the value investor, can really make his or her living. You simply have to have the knowledge and be willing to do the research to find assets that are priced below their value.

In the context of Warren Buffett, that means looking at the stock market, since he is primarily an investor in equities of public companies and not real estate. But I think it's important to note that you can apply this framework to other investments, not just publicly traded companies

So what Warren Buffett does along with his partner Charlie Munger and all the people that work for him is scour the world of stocks for those companies that are trading at a discount to their intrinsic value.

But you won't even begin to be able to do this unless you know how to calculate intrinsic value, in the case the intrinsic value of a stock.

It is a 4 part process:

First, one of the most popular ways to calculate intrinsic value is by using a discounted cash flow analysis, which involves estimating the future cash flows of a company and then discounting them back to their present value. Now, I think a lot of people when they hear about a discounted cash flow model, they may think that this is something that's a little bit too confusing to them. But it actually isn't confusing at all. In fact, if you google “discounted cash flow model”, you will be able to find easy templates that you can plug into excel and run your own discounted cash flow in under 1 hour.