If a Business Does Well, the Stock Will Eventually Follow
This rule was something that Warren learned after reading The Intelligent Investor by Benjamin Graham. This principle taught Warren to look for businesses that will dominate and succeed in the future so your investment can be stable and grow overtime. Look for businesses who have an increasingly large profit margin, one that is beloved by its consumers, and one that is ahead of its competition. Remember, wealth is not built overnight, and by following this approach, it will help ensure that you are on the path to long term wealth and success
- Most News is Noise, Not News
This may be one of Buffet’s more unpopular opinions, but the point is valid and helps especially new investors to cut out the extra noise and not focus on unimportant things. News sites, financial creators, etc… are generally paid to get views, and one of the main ways that some of them do this daily is by generating excess hype and buzz around news that is not important to you. Buffett says that this “chatter around markets” causes stockowners to pay more attention to this type of news, and then act upon it. Only a small percent of the business news that you hear will likely be important for you making a business decision
- When You Buy a Stock, Plan to Hold It Forever
This principle allows the investor to take full advantage of compound interest. If you constantly are buying and selling stocks daily, then you will miss out on a whole lot of returns rather than just letting the stock do its thing and grow overtime. Remember, Einstein said that compound interest is the 8th wonder of the world, so it’s all about time in the market, rather than timing the market.
- Only Listen to Those You Know and Trust
This goes back to the second principle. There are lots of news outlets out there for people to listen to but truthfully you don’t need all of the information that they are giving to you in order to make your investment decisions. The best people to listen to are people who you know and trust so you can be sure that they have your best interests in mind. Examples would be investors like Warren Buffett, Benjamin Graham, Robert Kiyosaki, and even a close friend who has done their research and been successful with investing. Remember, it’s very important to know who you’re getting your investing information from
- Understand what You’re Investing In
You don’t need to invest in overcomplicated stocks or an extremely complex business model in order to make money. The best example of this would be looking at the companies that make up Buffett’s portfolio. You’ll see that a very large number of them, if not all, have a business model that is relatively simple to understand. If you do not understand how it works, you don’t know what to be looking for when the business will grow or decline, and are almost throwing your money in blindly.
- Be Fearful When Others are Greedy, and Greedy when Others are Fearful
Today, we’ve had a bull market for around 11 years now with stock prices rising immensely. This leads everyone to think they are geniuses in the stock market because everyone’s been making money. So, everyone becomes greedy and everyone wants to invest, which over inflated stock prices and making it harder and harder each day to find a good deal. This is the time to be fearful and careful with our investments. But, when panic starts to kick into the stock market and prices are down, that’s the time to be greedy and snap up deals
- Buy at a Price Below Intrinsic Value
No company is worth an infinite price, and you must make sure that the price you are buying something at is below or at intrinsic value. If you were buying a lamborghini for example, you would need to ask yourself if it’s really worth the price. Buffett stated “Price is what you pay, value is what you get”. You need to know how to get the intrinsic value of stocks, and then based on that decide whether the investment is worthwhile one or not.
