Investing like Buffett: From Warren Buffett’s rule book: According to this, the stock market legend lives and invests | message
Shares in this article
• Warning of recklessness and a lack of research
• Successful company – successful share price
• Buffett advises long-term investments
Warren Buffet is an investment legend and one of the richest people in the world. According to Stephanie Loiacono from the finance portal Investopedia, some of the stock market guru’s statements are even philosophical. Using quotes that can be traced back to the star investor, Loiacono has drawn up rules by which Buffett lives – and invests.
Thorough research can prevent loss of money
One of the most cited statements by Warren Buffett is a fundamental rule of thumb for investors: “The first rule of investing is, don’t lose money. And the second rule of investing is, don’t forget the first rule. And that’s all the rules there are. ” As early as 1985 Buffett explained this strategy in an interview with Adam Smith on his show, which ran on the US television channel PBS. Loiacono pointed out that Buffett himself failed to follow this principle a few times – after all, he is said to have lost about $ 23 billion during the 2008 financial crisis. But it is more about a way of thinking than a concrete action. Investors shouldn’t get careless and get enough information. Buffett himself only invests in companies that he has researched thoroughly and fully understands. Investments in which he believes he can lose are excluded. Furthermore, he considers temperament to be the most important quality of an investor – even before intellect. This also means that you don’t swim with or against the current, but rather stay focused on your own goals and pursue them in the long term.
Company success affects share price
Another stock market advice Buffett has given in the past is, “When the company is doing well, so is the stock price.” Buffett is said to have drawn his inspiration for this quote from Benjamin Graham’s “The Intelligent Investor”. Buffett himself attended the economist’s lecture at Columbia University as a student, CNBC reported. With reference to Graham’s standard work, a stake in Buffett equates to a partial ownership of a company. Specifically, this means for the investor that when making an investment, he is on the lookout for companies that could be successful in the long term. A consistent operating history, a dominant sales concession or high and sustainable profit margins could be important here, as Loiacono explained. Only if a company’s share price is below expectations for future growth are the bills eligible for Buffett. Investors should only buy shares if they can give reasons for a certain price per share.
Get in low
Furthermore, Buffet is said to have advised “to buy a wonderful company at a fair price instead of a fair company at a wonderful price”. As a value investor, Buffett prefers to buy high quality stocks at rock bottom prices. He is pursuing the long-term goal of building ever greater operating strength for his company, Berkshire Hathaway, by creating a portfolio of stocks that can post strong profits in the future. He added to his portfolio during the financial crisis in 2007 and 2008 with stocks that slumped as a result of the crisis, including General Electric and Goldman Sachs, from which he hoped to generate profits in the long term. In order to locate such companies, investors need a good instinct. Companies that offer a long-lasting product and also have solid operating results come into consideration. There should also be a good basis for future profits. The price one pays for a share does not correspond to the value one receives for it.
Hold stocks for the long term
When it comes to how long you hold stocks to sell, Buffet has one piece of advice: “Our preferred holding period is forever.” Buffett is reported to have guessed that if you’ve got a bad feeling about owning a stock for ten years, you shouldn’t own it for ten minutes. Even in crisis situations, he held the majority of his shares. In most cases, a long holding period is intended to discourage an investor from acting too humanly: instead, fear or greed could lead you to sell a stock at its low point or buy it at its high point, negating the long-term appreciation of the portfolio.
Finanzen.net editorial team
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