Buffet's investment principles

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Warren Buffett quotes:

"When you buy a stock, plan to hold it forever"

"Diversification can be dangerous"

"most news is noise and not news"

"The best moves are usually boring"

"low cost index funds are sensible for most investors"

"only listen to those you know and trust"

You are simply buying a piece of a business

A stock is simply a piece of a business, start thinking about stocks as ways of voting on which businesses will succeed in the future and the stock market is a simple mechanic for pricing those strategies. Unfortunately the stock market is often wrong in the way in which it prices businesses. This opens up opportunities to find businesses which will have strong future success and also be purchased at prices which are attractive due to the market not correctly pricing these businesses.

The price of a stock tells you nothing about the business, understand the underlying principles behind the business and if they seem good: value the firm and then check to see if the price is in line with your valuation. There are no secrets, find good businesses and hold them for a minimum of 10 years and you win.

What is a company worth?

A company is simply worth: the amount of cash flow the business will produce in the future discounted back at the correct interest rate to our time. Mr. Buffett has made this clear and a companies value lies in what the company can give you back after you've invested a principal amount. The companies value can also be found within it's assets and earnings, the better the business is at using it's assets- the greater the value of the company.

In addition to this the business must offer the buyer a margin of safety to be considered a value investment, the margin of safety is simply the difference in the price of the company and it's true worth upon thorough analysis. To find the value of a company, you have to really go the extra mile: in understanding the true valuation of the business: the secret to valuing a firm is to stay within your circle of understanding and you increase your chances at attaining success in the stock market.

Who is investing in the stock market for?

Investing in the stock market is for those who are seeking to purchase pieces of businesses and wish to have flexibility in owning the asset. Stocks are liquid assets, they are easy to buy and sell- this gives you flexibility in your investing but this does not mean that you have to sell on impulse or reaction. Stock market investing is for those who are patient and can hold a stock for a minimum of 10 years before expecting the business to give a decent return.

The stock market is for the patient and wise, those who are purely rational in selecting stocks and also have the temperament to hold onto the stock during down times in the market: the longer you can hold a business, the more you will make. If your going to sell your stock because it goes down in price, do not invest in businesses.

What does it take to beat the market?

Mr. Buffett has made it clear that you are your biggest enemy when it comes to investing, you have to not get in your own way and that alone is the key to success in investing. Not getting in your own way and managing yourself the right way, in order to stay patient in times of volatility and to stay emotionally stable, always remember that: you have to stick to your reasoning for the long term and being in it for the long term.

To do well in the markets, you have to have patience, emotional discipline and to be able to think independently about potential investment decisions. To beat the market: you'll have to browse through hundreds to thousands of businesses, you have to understand that 99% of businesses are not worth investing in: if we are looking to beat the market, you just have to do what other analysts wouldn't and that is go from A to Z in terms of screening and browsing for investments. If you can't do this, don't invest to beat the market: an index fund would be a wiser option and may still allow you to out perform the market.

How does Warren Buffett beat the market?

Beating the market is disgustingly hard and takes a lot of effort, you need to be able to read through a lot of annual reports. The person who turns over the most rocks wins in investing.

Should you wait for a market crash to buy stocks?

A common question that all investors think about. Mr Buffett's take.

How to get excellent investment ideas

Excellent investment ideas do not just come out of thin air, you have to be able to understand investments to get great ideas- this video will guide you in regards to finding strong investments.

Investment strategy and mastering the market

If you can properly understand the market, you put yourself in a position to create a lot more wealth.

How to choose stocks

You might be wondering why Buffett's own company doesn’t follow his advice. After all, Berkshire Hathaway was built on investing in individual companies, and its portfolio contains billions of dollars of stock investments in companies including Wells Fargo, American Express, and Coca-Cola.

how to choose stocks

The circle of competence

Circle of Competence is simple: Each of us, through experience or study, has built up useful knowledge on certain areas of the world. Some areas are understood by most of us, while some areas require a lot more specialty to evaluate.

circle of competence

Emotional stability

“I’m no genius. I’m smart in spots—but I stay around those spots.”

emotional stability

Learn more about stocks

But as Buffett so eloquently put it, we do not necessarily need to understand these more esoteric areas to invest capital. Far more important is to honestly define what we do know and stick to those areas.

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