How does Warren Buffett invest in penny stocks?


Quick Answer

Warren Buffett, the billionaire investor and founder and CEO of Berkshire Hathaway, does not hold any positions in penny stocks, as of 2015. The Berkshire Hathaway fund invests in long-term value companies with an emphasis on the stocks of well-known insurance companies, explains Investopedia.

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Full Answer

Buffett did invest in penny stocks early in his career as a stock trader. Buffett would buy stocks of undervalued companies that were trading at pennies on the dollar in relationship to fair value. According to the book モThe Snowball,ヤ Buffett made his initial fortune by investing in companies with discounted stock prices, reports the New York Times.

Today, Warren Buffettメs investment approach consists of insurance companies and blue-chip value companies that are trading lower than fair value. His Berkshire Hathaway fund holds positions in mega companies such as American Express, Coca-Cola, Wells Fargo and International Business Machines, known as IBM. However, Buffett does invest in lesser-known companies with discounted stock prices. Buffett uses a モcircle of competenceヤ approach to investing, which consists of businesses he can easily analyze and interpret, explains Investopedia. Using the モcircle of competence,ヤ Buffett decides if a companyメs future earning power is greater than the companyメs current fair value, also known as the market value.

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