Ask Colin

If Warren Buffett's approach is so successful, why worry about looking for uptrends?

The Buffett model is to find the very few companies that he thinks:

1. have outstanding businesses (he calls them "franchises" to denote that they are in an area with strong long term growth, a natural monopoly and very good management).

2. are being undervalued by the market.

Because he is very good at finding these companies, and of correctly assessing their real value, he is not concerned if they go down in the meanwhile - it is even suggested that he will watch while one goes down 50% - so long as the business is still strong.

That is easier to do if you are a billionaire or young or both. There is a problem though if your investment horizon is not long enough to wait to be proved right and you have enough money that you are OK even if you are wrong.

I cannot see what is wrong with overlaying another test on his approach - that the market must be recognising the undervaluation or growth prospects by marking the price up in an uptrend. It must give us some extra confidence that we are correct about the worth of the business and that it is undervalued.

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