The secrets of Warren Buffett´s success
Warren Buffett the legend of the capital markets has some very intelligent investment principles. His principles aren´t very complex and you probably don´t have to be a mathematical or a social science genius to understand them. But in order to apply them you need a very conservative, clear and analytical character. Also you should read very much about value investing especially every opus Benjamin Graham and David Dodd ever wrote, so don´t think it´s a quick there´s quick way to become a superinvestor. However when you did that these 5 rules will put the final touch on your investment style.
1. Buy the boring not the pompous ones.
Invest your money in companies and business models you understand and which are needed by the world. Warren Buffett for example buys confectionery manufacturers, drink producers, producers of clay-bricks or if he really wants to have something exciting, assurances.
The Reason: Because these companies are always needed they will always grow just like the population of world does so actually you can´t do wrong really much.
2. Beware a cool head and have patience.
If you think Warren Buffett would sell one of his stocks just because it falls in price you are definitely wrong. Because actually he does exactly the opposite he buys new ones.
The Reason: Warren Buffett always buys his stocks to a very cheap price if you want to know how he does that read the chapter margin of safety. So when these cheap companies get even more cheap he is the happiest man in the world because he can buy more share of fools to an even better price.
Mr. Buffett says you should buy castles with a big castle moat. Translated that means Warren Buffett buys companies with a very good business model which can´t be copied so easily. His companies should be something like a monopole just like Coka Cola, Gilette or Microsoft.
The Reason: The main problem of the capitalism is the profit margin when the margin is too high it attracts others who also want to participate in it and the margin falls. In order to circumvent that Warren buys companies which can´t be copied so easily.
4. Concentration instead of diversification.
Many people say you should diversify and spread the risk on at least ten different stocks. Warren Buffett says diversification is something for people who don´t know what they do.
The Reason: If you know that a stock is really cheap and you make a snap why should you also buy other stocks?
Take your time by finding good stocks and wait until they get even more cheap. Sometimes Warren Buffett even waits 2 or 3 years before he buys a stock.
The Reason: Finding a good company isn´t that difficult much more difficult is to find a good company to a good price. So Warren Buffett looks for an interesting company and waits, waits and waits until he can buy the company for the price he want´s to pay.
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4 Responses to “The secrets of Warren Buffett´s success”
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Thank you for the concise advice.
Aloha,
Keahi
Very good tips, Warren Buffet is the man, any tips from him are most likely as good as money. Thanks for the article.
I just started My Stock Market Journey http://www.ourstockmarketjourney.blogspot.com/
and I am also following the principles of Mr. Buffett because they make sense and fit my style and personality. I created a checklist based on what I’ve learned so far about value investing. This checklist is definately in line with the tips you have.
http://ourstockmarketjourney.blogspot.com/2008_06_01_archive.html
Keep up the great job.
Be well.