One of the world’s most impressive — and successful — stock investors is never greedy when it comes to sharing a piece of knowledge and experience. Knowledge about money, investing and life in general. Here are 3 rules the Oracle of Omaha lives and trades by. Warren Buffett is definitely the man worth listening when he has something to say.
1. “If the business does well, the stock eventually follows”
In other words, when purchasing a stock, you are not buying a piece of paper, you are buying a part of a real-life company. The latter has a number of distinctive characteristics, its own strengths and weaknesses and is run by particular people. Focus on companies that do their job — and do it well. After all, the business is only worth your money if it can generate a decent cash flow.
Benjamin Graham, the author of “The Intelligent Investor” and the man who inspires Warren Buffet, says that the real value of a company is more important than its market price.
2. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”
Warren Buffet, just like the traders of the past he admires, is a value investor. He, therefore, enjoys buying high-performing companies at a fair price to see them appreciate over time, yielding impressive results. In the long run a wonderful company can potentially grow at a faster rate than a situational business, created only to serve short-term demand. When the 2008 financial crisis hit, Buffett was there to buy high performing companies like Goldman Sachs and General Electric at rock-bottom prices and was right in doing so. Worth $62 billion ten years ago, he can boast a fortune of almost $75 billion as of now.
Of course, in order to tell the good company from a mediocre one, you would need a list of certain criteria, that you would later use to evaluate the stock at hand. What exactly could those be? You can use price-to-earnings ratio, earnings per share and other metrics. But don’t forget that no metric is capable of predicting the future price of an equity with 100% accuracy.
3. “Be willing to be different”
You don’t have to be different but if you feel the need to, then don’t be afraid of it. After all, you are the one allocating your funds and being exposed to the risks. No other party is responsible for your success. Concentrate on your facts and analysis so that when the market is against you, you still can explain why a certain decision was made.
Warren Buffett was also once dubbed an oddball, when back in 1956 he collected $100,000 from a group of investors but refused to relocate to Wall Street and kept his company picks in secret. 14 years later his fund was worth $100 million.
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*Information regarding past performance is not a reliable indicator of future performance.
