7 most powerful investing principles of Warren Buffet
Think of investing and first name flash in your mind will be WARREN BUFFET. Over the time Investing and Warren Buffet has become 2 sides of a coin. In 1993, Buffet was richest man in the planet whose net worth was $8.3 billion and today he is in among top 10 richest persons in the World. or wealthy his net worth is more than $102 billion. What makes Buffet different from other richest persons is that he is the only one who has not created this much wealth by operating a business or by establishing a successful start up. Neither he has worked on a visionary idea nor he has created a product or service which can brought revolution and change the World. He became one the richest person in the by investing in other’s business. He sets an example that in order to be Rich or wealthy it is not necessary that you have to work on some visionary idea or you have to do something different. Buffet proves that following some basic principles of investing you can be the richest person in the planet. From his investing strategies he owns major part many profitable companies like Apple, Coca cola, Bank of America etc. In his investing journey he followed many principles, but following are the 7 most powerful investing principles of Warren Buffet investment journey:-
- Invest in what you know, and nothing more: Don’t get involved in overly complex investments unless you have the intelligence or time to understand the variables in detail. Use the knowledge you have of the industries you have experience with or can easily learn about. Never compromise on business quality. Saying ‘No’ to a complicated business is easy. Finding high-quality businesses is a little harder. Focus on buying high-quality companies with promising long-term opportunities for continued growth. Keep long term perspective for your investments.
- Think like owner of the business where you have invested: Buffet says the investment approach he uses is nothing more than using common sense and that given him a very good return. When most of the investors are focusing on Stock prices and major chunk of their time goes in predicting the Stock price movement. Buffet instead of focusing on stock price prediction, he invests his time to understand the business. He believes that an investor should treat a company in same way the company owner do because both want to make profit. The company owner focuses on the operations, long term perspective and expansion, same way an investor should think that he owns the company and focuses on business model rather predicting the its stock price day-in-day-out. Investor should invest in Value of business not in its stock price. He once said that “Price is what you pay, value is what you get.”
- Too much diversification can be dangerous: You must have come across a very famous quote- “Never put all your eggs in one basket”. Although Buffet don’t buy this philosophy completely. Instead of investing in many sectors he used to invest in 2 to 3 sectors which he understands the most. Also he invests only in selected quality and fundamentally strong stocks from those sectors. The benefits of diversification are exhausted when you own any more than 30 stocks in your portfolio. When your conviction is high, buy more of that stock. Don’t increase the count of stocks in your portfolio but increase conviction where you need to invest.
- Ignore the flashy news and trends in the market: 99% of the headlines you read regarding a particular stock are meaningless and will have no impact on the stock’s long-term growth if the company performs well. Most of the people decisions are influenced by flashy trends and gaudy news headlines. Stocks or things, people usually buy just because everyone is buying thinking it is a fashion trend. Most of the investors in the market are buying and selling stocks which are in trend. This may give them some returns too but in long run it can’t make you wealthy. Learn to ignore the noise of news and herd mentality and focus on data. For such investors Buffet quote “The most important quality for an investor is temperament, not intellect”
- Investing isn’t rocket science, but there is no “Easy Button”: Most of the successful investors of all time have been quoted saying that you do not require a degree to outperform the market. You just need to know basic maths to see if a company is growing or not. Keeping things simple is an undetectable trait of a successful investor but it also true that keeping things simple is the biggest challenge in investment journey. Just like owning a good quality stock is simple but having conviction to stay invested in that stock even if its price temporarily falling is the biggest challenge. He once quote “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
- The best moves are usually boring: If you want excitement when you make money go to Casino. Stock market is a very boring place for those who want to make money out of it. Stock market is not the place to get rich quickly but it is a tool to get mega-rich slowly. Stock market is a place where money goes from impatient to patient investors. Here long-term index investing has the highest success rate for most people. This is the reason Buffet always favors the Low-cost index funds for most of the investors. Though it is boring but a sure shot way to create wealth in long run.
- Best investment is Investing in yourself: In an interview in 2019 Buffet says “By far the best investment you can make is in yourself.” This may be the most valuable of all lessons from him. To make the most of your investment means never stop acquiring knowledge. Keep learning that enhances you as a whole person, not just as an investor. Your goal is to be a good investor and also a good person. Mr. Buffet is not only a great investor but also a great philanthropist. Do good to everyone and good will come to you. Happy Investing.
