It will be rare for an investor to not have heard about Warren Buffet’s investment tips and strategies. Warren Buffet – an American business magnate, philanthropist, and the CEO of Berkshire Hathaway is one of the most revered individuals in the stock market whose investment philosophy is widely followed around the globe.
Warren Buffet started his investing journey in 1962 by buying stocks in Berkshire Hathaway which, back then, was a textile company. Upon investing in its share he realised that there is not much profit in it and started to sell it and began investing in insurance companies instead. In less than 10 years – in 1965 – he took the charge of Berkshire Hathaway, became the Chairman, and acquired several companies including a 7 percent share in Coca-Cola, and soon became a billionaire in 1990. Today Berkshire Hathaway’s value is over $496 billion.
Warren Buffet’s journey – from a simple investor in 1962 to becoming one of the world’s billionaires in 1990 in a short span – comes with certain lessons for the new investors. Here are the top four from Warren Buffet’s investment philosophy.
The top 4 Warren Buffet’s investment principles
- Invest in companies that we understand
To the new investors, Warren Buffet’s advice is to always invest in companies or industries which they can fully understand. They should invest in companies where they know how a company generates revenue and major threats involved that will impact its stock. If a company is recently doing rounds in the news for being a profitable stock, investors need to research it first.
- Buy a stock and forget it
Warren Buffet is a firm believer of long-term investing. The secret of earning great returns on investment is to buy a stock and forget it. Investors need to be patient, invest in quality stocks and hold them for long as it will allow them to reap the benefits of compounding more effectively. Frequent trading will erode a significant chunk of returns in the form of commission and taxes.
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Warren Buffet started his investing journey in 1962 by buying stocks in Berkshire Hathaway which, back then, was a textile company.
- Warren Buffet’s 99-1 rule
Investors are surrounded by an abundance of information in which they are likely to get swayed away. The financial news generates noise that triggers investors’ sentiments and forces them to respond. Warren Buffet believes in the 99-1 rule where 99 percent of the investment actions should be attributed to just 1 percent of the financial news we consume.
- Have the eye to identify the real value
Buffet’s quote – “Price is what you pay and value is what you get” – is emphasising on identifying the true value of the company. Most investors make the mistake of investing in stocks by looking at their price. However, the stock price does not confirm that the company’s cash flow is stable. There can be times in the market when the stock prices are unrelated to the plans or outlook of a company. A majority of the bargains happen during the financial crisis as investors are in a hurry to quickly sell their shares irrespective of a company’s future earnings potential.
Warren Buffet believes in the rule of buying stocks lower than their actual value and holding them until the price reflects the real company value. His advice is to focus on the stocks of high-quality companies. The low price of a stock does not mean that it is a good investment.
Invest wisely to reach your financial goals
Investing is not hard, but we make it harder. By following simple investment mantras of Warren Buffet such as focusing on the longer term, investing in industries that we understand, will help investors better manage the portfolio, reduce errors and reach an inch closer to financial goals.
