Showing posts with label strategy. Show all posts
Showing posts with label strategy. Show all posts

Sunday, 15 January 2017

Open Interest Analysis for Options:Excel Sheet



Open Interest is believed as a Confirming Indicator by numerous traders across the globe. It generally confirms the market trend (whether its rising, falling or sideways) when used in conjunction with other parameters like volume and price. It also measures the flow of money in the market. This article would introduce you to the concept of Open Interest, and also demonstrate Open Interest Analysis Excel for Option contracts. The Excel sheet is downloadable from the end of this article.
Check out the other popular Excel sheets posted in this blog here.

Introduction to Open Interest

Open Interest represents the number of outstanding contracts for Future and Option contracts. For Options, every strike price of Option contract has an individual Open Interest value. It can also be defined as the total number of Future or Option contracts that has not been squared off. Open Interest tends to zero value at the expiry day of derivatives market as every one squares off their open positions.
Check out the below image which shows Open Interest of Nifty Futures:

Let’s consider a hypothetical situation to understand the concept of Open Interest in a better way:
Day 1: Ayesha buys one lot of Nifty 8300 CE, while Pooja sells one lot of Nifty 8300 CE. Total Open Interest: 1
Day 2: Deepika buys two lots of Nifty 8300 CE, and Heena sells two lots of Nifty 8300 CE. Total Open Interest:3
Day 3: Ayesha squares off her entire position (1 lot), and Heena buys one lot. Thus, effectively one Lot of Nifty CE gets offloaded from the market. Total Open Interest:2
Day 4: Pooja and Heena buy one lot of Nifty 8300 CE, and Deepika sells her two lots. Total Open Interest:0
To summarize, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract. If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract. The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change.

Relationship between Open Interest,Price and Volume

There is a very tight co-relation between Open Interest, Price and Volume. It helps to interpret the trend of Market very effectively. An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal. Te relationship between Open Interest, Price and Volume can be summarized in the following table:
PriceVolumeOpen InterestMarket Trend
RisingUpUpStrong
RisingDownDownWeak
DecliningUpUpWeak
DecliningDownDownStrong

Open Interest Analysis Excel Sheet

This Excel sheet is designed to predict the Trend of each Option Strike of Nifty Futures. Please note that this is not our creation, as it is freely available in many online forums. We have just tried to make it more presentable so that even beginners can understand it. The Excel sheet attached with this post is for Nifty Options. It can be modified very easily for any other contract too.
The Trend determination is based on Option Price change and change in Open Interest with respect to previous day. Below is the summary of calculations present in Excel Sheet:
Price ChangeChange in Open InterestSignal
<0 <0Long Liquidation
<0 >0 Short Buildup
>0 >0 Long Buildup
>0 <0 Short Covering
See the below screenshot:

How to use this Excel Sheet

Step 1: Download the Excel sheet from the link provided at the end of this post.
Step 2: Double click and open the downloaded file. It will throw some warnings for the first time. Click on OK.
Step 3: Make sure you are connected to Internet. The Excel sheet will update every 5 minutes.

Download Link

Please download Open Interest Analysis Excel from the below link. Let us know in comments section if you have any queries.

Trading Range Breakout on Daily timeframe: Excel Sheet




Most of the traded securities in capital market moves in a range for around 80% of time and trends higher or lower for 20% of the time. And when it breaks this range with high volume, a very good buying or selling opportunity is signalled. Since the inception of technical analysis, range breakout trading systems coupled with money management are considered very useful and profitable. This excel sheet will illustrate one such range breakout setup. The logic behind this setup was originally developed by Sir Tony Grabel.

Strategy overview:

As per this range breakout method, a trade should be initiated when the price moves higher or lower than the sum of current day’s opening price and 5 days average price range.
Buy Logic: Current Price>Open Price+Average price range of last 5 days
Sell Logic: Current price<Open Price-Average price range of last 5 days
Target and Stop Loss: Indicated in Excel Sheet

Excel Sheet:

Worksheet Name:
Breakout Trading
Inputs:
  1. DATE,OPEN,HIGH,LOW,CLOSE: Open,High,Low,Close values of last five days for the selected security.
  2. Today’s Open: Today’s price at market open.
Outputs:
  1. RANGE: Average price range of last 5 days.
  2. BUY ABOVE: The system signals to buy when price crosses above this value.
  3. SELL BELOW: The system signals to sell when price crosses below this value.
  4. TARGET 1,2,3,4,5,6: Different profit booking targets based on your money management rules. It’s advisable to book partial profit at each target level.
  5. STOPLOSS: Price level at which one should exit if trade goes in opposite direction.

Screenshot:

Download Link:

Summary:

We have tested this trading system on many different securities. It seems highly profitable on liquid stocks and indices like Nifty, Banknifty, SBI, ITC etc. For these, the average trading volume is usually high compared to others. There are many different variations of this strategy on intraday timeframe. We’ll try to post them all going forward. Kindly download the excel sheet and explore this strategy yourself. Fell free to post any queries.

Saturday, 14 January 2017

Impact of company’s quarter results on stock price




The answer is divided into 3 section:
  • Impact of QR
  • Components of QR (which investors should look before they invest)
  • Short overview on Facebook 4th quarter result.
If you are an existing shareholder or are going to invest in the company then you must be highly urged to know what’s happening in the company time to time and how it has been performing.

One of the ways to find out is to look at the quarterly numbers published by companies.
As per the SEBI regulation, it is compulsory to publish quarterly results for all listed company.
Quarter results have a great impact on stock price.
  • A single positive hike in the sales can increase the share price to rocket high.
  • It also acts in negative performance.
Like a news on HDFC bank, positive quarterly results made the stock green.
Like a negative news on Microsoft made the share red:-
However, stock market news are full of quarter results. By this, you can understand the importance of quarter results and its impact on stock price.
Below is some news which may give a tinge of glimpse :-
You can find more day to day news on quarter results on any finance news site or app.
Below are some basic components (defined by business today) that investors should seek out:-
  • Gross Sales: Gross sales are also called as the ‘top line’ or revenue or total sales.
  • Net Sales: From gross sales, you can derive net sales by deducting sales return, sales allowances, and sales discount from gross sales.
  • Operating expenses: These are expenses that arise during the course of running a business. Operating expense consists of items such as salaries paid to employees, research and development costs, legal fees, accountant fees, bank charges, office supplies, electricity bills, business licenses.
  • Operating Profit: When operating expenses are deducted from net sales you get the operating profit, or earnings before interest, tax, depreciation and amortization (EBITDA).
  • Net Profit or net income: In the income statement you can find details about tax and loan repayment which when deducted from operating profits gives you the net profit.
  • Earning Per Share (EPS): It is the amount of earnings per outstanding share of a company. Outstanding share refers to those shares which are trading in the market. EPS is arrived at by dividing net profit by numbers of share outstanding.
  • Interest Cost: It is the cumulative sum of the interest paid on loans by the company. “Rising interest cost depicts that the company has increased its debt.
This is some key areas in quarter results. Decline in Operating expenses and interest cost shows a good sign whereas opposite rule applies to the rest.
“Cause and effect” on “Quarterly Results” of Facebook.
Facebook share gone trendy due to 4th quarter results.
CAUSE :-
  • Facebook sales increase by 123%.
  • Facebook net profit surges by 52%.
EFFECT :-
  • Facebook share surged by 13%.
  • Facebook CEO become the 6th richest man. His wealth grown by 6 billion.
That’s how quarter results affect the stock market.
You can also have a look at quarter results (in some key affecting areas) described in section 2nd of this post.

UPDATED:

It all about “expectations”
It is a wrong sentiment that profit means price hike and loss leads to drop.
It’s not a thumb rule.
Market run on expectations instead of present fundamentals.
No price in the market reflects the perfect value of the fundamentals of the company.
For example:
X company reported 100 as a profit last year but this year people are expecting 60 as a result of the company.
Now as per the expectations, the market will value the stock according to 60. The change in the price will not immediately get reflected, it may take weeks, months and even years for the market to get that stock at the price which equates to the expectations.
So the price before the results announcements will be the price which reflects the company which will report 60 as a profit (lesser than its last year profit).
Hold on! What if the company reported a profit of 80?
You might simply say – It’s less than last year profit so the price will go down.
But here is where you went wrong.
The price before the announcement reflect the value which equals to the company which will earn 60 but it earned more than that.
SO the price will absolutely increase.
What is market expectations?
It’s the overall sentiments of retail investors, brokers call, big investors bets etc altogether develop market expectations.

How To Invest In Share Market (And Not Lose Money)

You might have read some articles on making money in stock markets, but I want to tell you how to lose money in the stock market. I have good experience in losing money in stocks .

As a thumb rule, if you can cut off your losses in stocks, you will end up making money.
Don’t become greedy for making quick money through stocks but be patient and learn company analysis. I hope you will learn from my mistakes.

Avoid Below Points To Make Money In Stocks

#1. Blindly Follow Broker Tips

I started investing in stocks in 2006, just after my first job. I was eager to invest in stocks but had no clue about the market. I started following the advice of brokers & analysts and made losses in almost all shares in early days.
Tip: Ask your broker to provide you a detailed analysis of the stock. Do further research on the stock before buying.

#2. Joining Scam Program

If you want to lose all of your money then find good scam program and follow their advice. They will make you bankrupt in no time. I started learning stock analysis by myself and kept myself away from such scams.
Scam programs collect thousands of emails of investors and recommend them stocks. They use divide and conquer method to predict stocks with 100% accuracy but actually they fool people. Manish, founder of JagoInvestor has written a beautiful article on how stock scam programs work.
Tip: Don’t spend even single rupee in joining any stock recommendation program

#3. Keep On Averaging Price

This is the biggest reason why your portfolio is still in Red. Everyone (including me) makes this mistake in early days of investing. When our stock starts trading below our buy price, we hold it tightly. One of the reason is our ego; we don’t want to look like losers. We don’t sell the stock even when it lose its 20% value. In fact, we start buying more as the stock keeps dipping further. One day, our stock purchased at 400 rupees is trading at 20 rupees with no hope of moving up ( Referring my worst investments in EduComp & KS Oil).
By averaging price to protect my ego, I lost 180 rupees per share of 200 average buy price of 100 shares – total loss of 18,000. I could have sold my 10 shares bought at 400 rupees at any price – worst case loss could be limited to 4000 rupees.
Tip: Don’t get married to a stock.

#4. Sell Your Stock When In Profit

.. but keep holding when it’s in loss
I don’t know why, but we sell stocks when we see them at small profits (10-15%). We do not have the patience to wait till profits become 100% or 500%. We regret after few months when we see our sold stock trading at the double price.
Smart Investors like Warren Buffett and Rakesh Jhunjunwala says to “Water the flowers, cut the weeds.” We do just the opposite. Cut the profit making stocks and hold on loss-making stocks.
Tip: Buy and Sell decision should come from fundamentals of the stock, not the market price.

#5. Buy Penny Stocks For Getting Rich

No one ever become rich by buying a penny stock. Check the portfolio of Warren Buffet or Rakesh Jhunjunwala – they buy quality, stocks not penny stocks.
We are fooled by so-called market experts who want us to eat shit, and we do. Someone recommended me to buy Cals Refinery stocks eight years ago, that stock never moved from 10-15 paisa.
Tip: Clean your portfolio from penny stocks

#6. Stock Will Not Go Further Down

We get emotionally attached to stocks. Even today, I do. But I am learning how to break this pattern.
We buy shares of a company and it starts rolling down. Every day we think that our stock will not go further down, but it does. We don’t bother to re-check fundamentals of the company and think that stock is already at 52-week low price and it will get stability here. But you know what happens ðŸ™‚
Tip: Don’t rely on historical prices.

#7. Playing With Future & Options

..without understanding the fundamentals of trading
Last year I did the mistake of investing in futures and derivatives. I should have learned intra-day trading before investing into F&O but one of my friend taught me basics and I bought some options with stop-loss of 3000 rupees. I made a profit of 10,000 rupees in few trades.
Overwhelmed with my success, I played with bigger amounts and lost more than 1,00,000 rupees in few days. Now I am scared of F&O and invest only in long-term value stocks.
Tip: Learn F&O before investing any money.

#8. Over Diversifying Portfolio

In early days of my investments, I used to have all hot stock in my portfolio. I kept on switching stocks in the hope of making money from my diverse portfolio.
I was rather more confuse and clueless about my investments.
Tip: Buy a business that you can understand. 5 quality stocks in your portfolio perform better than 30 mediocre stocks.

Friday, 13 January 2017

This Woman Helped Build A New Indian Stock Exchange. Now She Runs It


Ramkrishna, managing director & chief executive officer of the National Stock Exchange of India Ltd.(NSE).
Bloomberg
It's rare that a woman runs a stock exchange -- there are just three in the world. Even rarer to find one who was chosen 23 years ago for the crack team that created it and then climbed the ranks to become its chief executive officer in traditionally patriarchal India.
Chitra Ramkrishna, 52 and head of the National Stock Exchange of India, wants to retain the startup culture of her early days that helped grow the NSE into the world's third-largest bourse by number of trades and the leader in India with an 82 percent market share that dwarfs the 140-year-old Bombay Stock Exchange, or BSE. When the NSE needs something new, it creates a team: Currency trading, bond futures and exchange-traded funds are the fruits so far. Another team is now working on bond innovations to go beyond the current 10-year product.
"There is a huge level of energy and can-do attitude that is in a startup culture which we shouldn't lose," Ramkrishna said in an interview last month at the NSE's squat, glass-fronted headquarters in Mumbai. "For the rest, there is huge focus on processes and discipline that we have to bank upon. We try to get the best of both the worlds."
Ramkrishna, an upper-caste Brahmin who calls Mahatma Gandhi her role model, wants to make stock markets accessible to India's middle classes using the exchange-traded baskets of securities known as ETFs. "I'm sure even he would have bought my ETFs!" she said.
ETF Push
Getting living Indians to buy them is another story. Last year, the NSE held more than a dozen public financial awareness programs and continued a marketing push to get banks and brokerages to encourage investors to put their money into ETFs. Domestic investment can cushion imbalances created by overseas hot money flowing in and out of India. Less risky than individual stocks, they can be a way for people to invest for retirement.
Just an estimated 1.5 percent of Indian households own equities, compared with 10 percent in China and 18 percent in the U.S. Still, domestic investors, fueled by optimism over the election of Prime Minister Narendra
Modi, channeled $6.7 billion into Indian equity mutual funds including the NSE's 42 ETFs in the fiscal year ending in March. The NSE's CNX Nifty Index rose 27 percent in that period before dropping 3 percent since April 1.
"I'm driven by the belief that more ordinary people should be able to prosper and benefit from the stock market boom in India," said Ramkrishna, whose father and grandfather were accountants.
Grown Up
Ramkrishna, who took over as CEO in April 2013 after serving as co-managing director, has "grown up with the exchange," said S.B. Mathur, the bourse's chairman. "She knows the nitty-gritty of the operations, the technology nd risk-clearing, since she has been with the place from day one."
Ramkrishna was working at the state-run Industrial Development Bank of India, or IDBI, after earning degrees in commerce and an accountancy in Mumbai, where she was brought up after being born in Chennai. In 1992, she and four other technocrats were selected to join a team to build the first nationwide bourse. Ramkrishna was the only woman, picked because of her experience at IDBI in the 1980s working on a blueprint for a national regulatory agency that led to the creation of the Securities and Exchange Board of India.
The NSE team was mandated to develop technology to move trading from open-outcry to electronic, untested in India at the time. They were going up against a Goliath, the Bombay Stock Exchange, that had been entrenched since its creation in 1875.
'Enormous Freedom'
"People were really skeptical about us when we started," Ramkrishna said. "It gave us enormous freedom, there were no expectations. We were able to question a lot of existing paradigms. We could even be irreverent about it."
They worked out of a tiny, leased office in a part of central Mumbai known for its defunct textile mills. The average age of the team was 25 -- only because its leader, R.H. Patil, was around 60 at the time and used to joke that he skewed the average upward, Ramkrishna recalled. They all worked intensely with a startup mindset, and they had a blast, she said, "a party every evening."
Investors, freshly bruised by India's worst-ever stocks scam, were receptive to change. In 1992, a rogue trader, Harshad Mehta, had funneled money borrowed from banks into equities on the BSE, pushing up stock prices and earning the moniker "Big Bull." When the $2 billion fraud was discovered, it caused a market crash.
The NSE team identified an inefficiency at the BSE that allowed in only select brokers. Ultimately, its creation ended the open-outcry trading system, where brokers in the pit used hand gestures to find buyers or sellers and cut deals.
God Knew
"How price discovery happened in those situations, only God knew," according to A. Balasubramanian, an early stock market investor and CEO of Birla Sun Life Asset Management Co., which manages about $18.7 billion.
NSE's new screen-based trading started in 1994. Using a satellite, it displayed stock prices that could be accessed simultaneously at brokerages nationwide.
"We kept crossing our fingers on many days, but the good news is that when we switched it on, it worked!" said Ramkrishna.
The NSE introduced refundable membership for brokers, replacing BSE's earlier system of auctioning broker permits that restricted the number of participants and trading volumes. Antiquated "badla" contracts, an indigenous system using credit for stock purchases, were substituted with more sophisticated futures and options. Nearly 60 percent of NSE's broking membership in the early days came from cities other than Mumbai.
Old Boys
"It also benefited from the perception back then that BSE was run like a cartel, an old boys' club," said Balasubramanian. "NSE has been very nimble-footed."
The NSE's 82 percent share of India's trading over the BSE comes despite the older exchange having the largest number of publicly traded companies in the world: 5,625 versus 1,733 on the NSE, according to data from the World Federation of Exchanges. The NSE also introduced a range of indexes such as for mid-cap, small-cap and infrastructure stocks, giving investors greater choices, said Balasubramanian. NSE index options, in which the exchange leads the world in trading volume, track companies including those that make cigarettes and tractors or mine coal.
The NSE has spawned a generation of young, technology-savvy investors and brokers who led the stock market boom in the early 2000s, said R.K. Gupta, managing director at New Delhi-based Taurus Asset Management Co.
"It shook the old boys' club, bringing in new technology, more speed and transparency," he said. "NSE was a disruptor."
Disappointed Shareholders
Not all are admirers. Shareholders who invested in the NSE and counted on an initial public offering have been disappointed that it hasn't followed in the footsteps of other regional exchanges, such as Hong Kong and Singapore that are publicly traded.
"I've been investing in India for over 12 years and have never seen such a blatant disregard for shareholder rights," said Ravi Adusumalli, a U.S.-based managing partner at SAIF Partners, a Hong Kong private-equity firm that owns 5 percent of the NSE. He called it "highly ironic" that India's largest exchange doesn't provide liquidity to its own investors.
Arindam Saha, an NSE spokesman, declined to comment on shareholders' concerns or a possible IPO.
Listing Decision
U.K. Sinha, the chairman of the Securities and Exchange Board, said last month that the regulator would decide whether to list India's bourses in six months, after completion of a merger of the capital markets and commodities regulators that will enable exchanges to offer securities and commodities trading on a single platform.
IFCI Ltd., a state-owned project lender, which owns a 5.55 percent stake in the NSE, has been in talks with two firms to sell 2.5 percent. Its previous attempts to sell attracted lower-than-expected offers, according to Malay
Mukherjee, an IFCI managing director. "We are unable to exit because the price we are getting in the market is very low," said Mukherjee, who said the lack of IPO plans have hurt buyer sentiment. "Nobody wants to put in money permanently. Everyone is looking at a horizon of two-three years."
The NSE has among the lowest dividend-payout ratios globally among exchanges, said SAIF's Adusumalli. This gives the bourse an "extremely bloated balance sheet" that has depressed its performance and decreased returnon- equity from 48.5 percent to 17.3 percent over the past five years, he said.
NSE spokesman Saha also declined to comment on dividends.
Corporate Governance
Investors worldwide are demanding more corporate governance, Ramkrishna said. In November, the regulator granted bourses legal power to enforce stricter disclosure standards and improve transparency. The NSE imposed fines totaling 77.4 million rupees ($1.2 million) on companies last year for not complying with listing agreements, data compiled by Bloomberg show.
"It is inevitable that exchanges have to share some of that responsibility," she said, adding that the NSE is planning to expand its presence in North America and Asian markets, where it already has cross-listing agreements with Chicago's CME Group Inc. and a licensing pact with Singapore Exchange Ltd.
Ramkrishna's predecessor and the NSE's current vice chairman, Ravi Narain, said Ramkrishna has the tenacity and clarity of thought to ensure the exchange keeps its lead.
"She has a single-minded focus to build the best market possible in the world," he said.

Monday, 9 January 2017

How to Build a Warren Buffett Portfolio


Warren Buffett is recognized as the greatest investor of all-time because of his discipline and conservative approach to investing.
Instead of focusing on the short term, Warren Buffett focuses on the long term. He also has a low appetite for risk, buying companies that active traders would find boring beyond all belief.
Buffett once described his investment style as, “I’m 85% Benjamin Graham.” (Benjamin Graham is known as the godfather of value investing. His book, The Intelligent Investor, is respected as a classic on Wall Street. See also, 20 Must Read Investing Books).
Just look at Warren Buffett’s company Berkshire Hathaway’s (BRKA) stock price appreciation over the past 20 years. And yes, you are reading that correct, the stock currently trades for over $210,000… per share.
Berkshire currently holds a market cap of approximately $350 billion, making Warren Buffett the third richest person on the planet.
BRKA 20 year history
To dive deeper and fully appreciate Warren Buffett, I recommend reading his annual shareholder letters alongside the book, Buffett: The Making of an American Capitalist.
This post will focus on how to build a simple Warren Buffett portfolio, so let’s get to it.

Portfolio Benefits
There are five key benefits of constructing a Warren Buffett portfolio:
  1. You can sleep well knowing you are following the advice of the greatest investor of all-time, Warren Buffett.
  2. By buying and holding for decades while reinvesting dividends, the power of compounded returns is realized.
  3. With passive indexing in low cost index funds, you are keeping fees as low as humanly possible which maximizes returns.
  4. You are maximizing tax efficiency by buying and holding for decades instead of days (only relevant when investing in a personal portfolio versus a retirement account).
  5. The portfolio is easy to implement and straight-forward to follow.
Warren Buffett Portfolio Holdings


Warren Buffett’s recommended portfolio is actually extremely simple. In fact, there are only two holdings: the S&P 500 and a short-term US government bonds fund. Depending on how young you are when you start investing, it may just be the S&P 500 (more on allocation below).
What are the symbols for these two Vanguard funds? You can buy an ETF version or a mutual fund version. I personally use the ETF version, but either one works.
  1. S&P 500 index fund – ETF symbol VOO (no minimum), Mutual Fund symbols VFIAX ($10,000 minimum), VFINX ($3,000 minimum)
  2. Short-term government bonds fund – VFIRX ($10,000 minimum), VFISX ($3,000 minimum). No ETF version is available.
Buffett, 85 years young, revealed his simple portfolio mentality in his 2013 annual letter to company shareholders (emphasis mine),
My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.
Buffett provided similar advice after Lebron James asked him what he should do with his own investments,
“Through the rest of his career and beyond, in terms of earning power, [he should] just make monthly investments in the low-cost index fund,”
lebron warren
The reason Buffett recommends Vanguard funds over other providers is because the funds have the lowest costs respectively for the instruments they are designed to follow.
For example, VOO and VFIAX have a yearly expense ratio of just 0.05% (VFINX, with its lower minimum, charges 0.17%). For every $10,000 invested, .05% is a whopping $5 per year in management fees.
Here’s a Buffett quote on low costs and keeping investing simple,
Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.
What is the S&P 500?

The S&P 500 is the most widely followed index in the world. From Wikipedia, 
The Standard & Poor’s 500, often abbreviated as the S&P 500, or just “the S&P”, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.
If you want to invest in the United States as a whole, the easiest way to do it is to buy a fund that replicates the S&P 500.
In fact, both Warren Buffett and Jack Bogle (founder of indexing and Vanguard) believe the S&P 500 is all you need to have a worldwide exposure. This is because the S&P 500 generates just over 50% of its revenues domestically. The rest comes from overseas.
SP 500 company sales worldwide 082715
Best Broker for Following Warren Buffett

Which online stock broker should you use to build your Warren Buffett portfolio? The answer is simple. It doesn’t really matter which broker you use.
Since you are investing for the long haul and will be accumulating a large stake over many years, broker trade commissions will quickly become negligible, even if buying shares every month as Buffett recommends.

Warren Buffett’s Bet Against Wall Street
Warren believes so strongly in the simplicity of buying the S&P 500 that he bet a handful of hedge funds $1,000,000 that they couldn’t outperform a low cost index fund over a 10 year period. Winner gets a donation to the charity of their choosing.
Warren Buffett chose the Vanguard 500 Index Fund Admiral Shares (VFIAX) for his single position. The competition Protege Partners, a New York City money management firm, selected five unnamed funds of hedge funds.
The bet was kicked off in 2008 and as of early 2016 Warren Buffett’s bet was crushing the competition with a 65.7% return vs a 21.9% return for the hedge funds.
For the full story, NPR’s Planet Money podcast did a great episode on the bet which also covers the benefits of passive, low-cost indexing which I’ve touched on in this post.
planet money brilliant vs boring
Alongside the above podcast episode, I also highly recommend Barry Ritholtz’s Masters in Business interview with Jack Bogle (founder of Vanguard, indexing).

Closing Notes
Warren Buffett likes to buy companies that have stood the test of time, have fantastic managers, wide moats around their core businesses, and will be around for decades to come.
Building a Warren Buffett portfolio is a lot easier than many people think because the best representation of Buffett’s core beliefs falls under the S&P 500.
Buffett also believes in keeping costs as low as possible by consistently buying each month no matter what the market environment and then holding for decades. Also known as passive indexing, the other key is selecting funds with the lowest expense ratios, which is why Buffett recommends Vanguard.
All in all, you can choose any broker to build a Warren Buffett portfolio and follow the advice of greatest investor on earth. Awesome.
This guide was written by , Trader at Reink Media Group, LLC and was last updated on 2016-04-08.