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Investment rule number 1: Never lose money
Warren Buffet lost some money in the financial crisis. What he really means is being a sensible investor, cautious and avoid gambling on the stock market.
Investment rule number 2: Never forget Rule 1
Warren Buffet does not look at a company’s potential upside or future cash flow, but he rather looks for reasons a company might fail catastrophically.
Have a buy-and-hold mentality
“Our favorite holding period is forever.” – Warren Buffett
Warren Buffet focuses on purchasing high-quality stocks of high potential companies. He embraces the buy-and-hold mentality completely and minimizes the investment decisions he has to make. Buying at the correct timing and selling when the stocks are at peaks.
Know your investments
Buffet avoided investing in the technology sector, and that helped him avoid the dot-com burst from 2000 to 2002. Throughout the working career, gaining some insights about certain industries are certainly helpful and advantageous. This is not to say avoiding other sectors completely but proceeding with a lot of caution.
Learn from your mistakes
Buffet advises to record failures, analyses them and learn from them carefully. He also advises teaching this to our grandchildren. Don’t make the mistake of believing you will outperform the market by choosing stocks. Warren Buffet puts 90% of his investment in low-cost index funds.
Have some backup cash for emergencies and opportunities
For cases such as good stocks turn dogs, have some substantial cash in your bank account to help you against the inevitable adversity of the financial sector. Avoid being distracted by too many good opportunities and do your own research; sometimes it’s best to resist actions and do nothing.
Look at boring stocks
Many companies have sustainable business models and profits which provide basic products such as Procter and Gamble, Unilever, etc. Even though these companies are not the most exciting ones and the industry pace is slow, but that create good protection for the leaders.
Never overpay
Avoid the temptation to buy stock of a company no matter how successful it is. Wait until it is tested by the market and enter the bargain zone by creating a watch list of interesting companies and wait for price drops.
Look at the leaders
Coca-Cola is one of those company that controls the prices and the market. It charges more for its products and returns good profits for its investors.
Contact us:
Mark Churchmichael
markc@intelligencegroup.com.au