What lessons can we learn from Warren Buffett’s
Investing strategies. Whether you like him or not, his investment strategies
are the best, which made him one of the richest people in the world. Warren
Buffett‘s investment advice or his investing strategies are priceless and if
you can grasp these strategies you should do well as an investor. We know there are other investment strategies out there, but his strategies are both easy to
follow and have been successful for several years.
1. Turn Snowballs into Snow Forts
Above everything else, Warren Buffett believes in the
power of compounding over time with patience. In investing, this means starting
as early as possible avoiding short term risk even if it means lower returns
and letting investing returns build upon themselves. Buffett bought his first
stock when he was just 11 years old.
2. Look for companies with moat
Moat means competitive advantage that one company has
over the other companies in the same sector. Warren buffett coined this term.
Buffet always looks for firms with sustainable competitive advantages. The
stronger the company’s moat, the most likely it will lead for decades like
Coco-cola. Companies with greater competitive advantages have the ability to
outperform in good and challenging times.
3. Margin of Safety
This is one of the advices Buffet got from his mentor
Benjamin Graham, the father of value investing. Margin of safety refers to
buying securities when the market price is significantly below its intrinsic
value. Buying securities with a margin of safety reduces risk and provides
allowance for uncertain negative events.
4. Invest in what you understand
One of the personal investing advices of buffet is to
invest in the business which you understand and never invest in anything in
which you don’t have any knowledge. This is the reason he refrained from the
technology stocks. If you understand a business, you could have an upper hand
when it comes to buying the stock.
5. Hold on to your Stock
Buffett holds his stocks for a long time when he finds
a gem. Buffett personally recommends holding on to your stock for a long term.
Buying and selling securities frequently will cost you commission charges which
you have to pay to the broker. The important thing in investing is finding
great investments and holding it for long term.
6. Buy Companies Cheap
Buffett doesn’t give much attention to EPS (Earnings
per Share), a measure of a company’s profitability for each stock. Instead he
considers companies with good return on equity, companies which generate a lot
of cash, companies with solid operating margins and reasonable or no debt. He
likes to invest in companies with consistent operating history and also looks
to measures how well a company performs in different kinds of market including
good and hard times.
7. Invest in Quality Companies
Buffett believes in quality companies not in stock
symbols. Most investors invest in the symbols or brands of successful companies
without analyzing the business they invest in. As Buffet says “Invest like you
are buying the whole company or business”. Treat investing as if you
are buying the entire company. Investors are expected to know with the
following before buying the stock. What are the company’s products? Who are its
competitors? What differentiates it from them? What is risk in owning the
company stock?
8.
Stay
away from so-called ‘glitter’ stocks
An intelligent investor should analyze whether the
stock in news has real value or it is just glittering at the moment. It is
always beneficial to do your homework before investing in each and every
company. It is wise to diversify your investments across sectors and in
different asset classes.
9. Become a conscious Investor
“It takes decades to build a reputation and minutes to
spoil it. If you think about it, you’ll do things differently”.
It is necessary for the investors to think logically
while investing and researching a stock.
You should keep on asking yourself why you want to buy a particular
stock and should eliminate decision making based on emotions, intuition and
herd mentality. As advised by Buffett – avoid the noise, do your own research and
constantly update your knowledge and stock picking skills. Be a Smart Investor.
10. Know when to Quit
Once, when Buffett was a teen, he went to the racetrack.
He bet on a race and lost. To regain his money back, he bet on another race. He
lost again, leaving him nothing. He felt sick as he had lost nearly a week's
earnings. He never repeated that mistake. You should Know when to walk away
from a loss, and don't let anxiety or your emotions fool you into trying again.