Warren Buffet is, without a doubt, one of the world’s most prolific investors. As CEO of Berkshire Hathaway, the ‘Oracle of Omaha’ took company stock from $493 in 1981 to around $444,852 by 2021. Even when one looks at BRK.A stock from ten years ago, the price has still risen astronomically from $125162.48. Buffet’s innovative way of looking at business and analysing potential investments sets a strong example. After all, he started trading at 11 and is today worth over $100.5 billion. Over the years, Warren Buffet has given us key investment tips that he himself relies on for success. Let’s take a closer look.
Invest In Projects With Energy, Ambition & Integrity
In many lectures, Warren Buffet has expressed the vital importance of investing in projects whose energy and drive are clear. Don’t put yourself behind something that you know is of wavering integrity or a company limited in its proactivity. If the owners and staff-body are not ambitious in their vision, goals and practical pursuit of success, the stock is doomed.
Eradicate Emotions And Follow The Facts
Poor investments are almost always emotional decisions. The way that you feel about a company and its cause or way of doing business and the opinions of others have no place in analysing a potential investment. Stick to the facts, analyse your charts and ensure that you’ve put in enough research for a thorough analysis. Determine trading rules and follow them without diverging from the tried and tested strategies you know work.
Invest In Wonderful Businesses Not “Cigar Butts”
In the words of Buffet himself, ‘Don’t invest in cigar butts, invest in wonderful businesses. Warren Buffett compares companies with a limited future but growing immediate potential for quick earnings over a finite period to “cigar butts.”. They’re freely available and grant a fleeting taste of satisfaction that’s equally tainted, ultimately leaving one wishing you had rather not picked it up at all. This is much like businesses who are likely to allow you the opportunity to sell off at a decent profit in the short term but present terrible long-term performance prospects. Warren Buffet sees these “opportunities” as a waste of time.
Determine Your Circle Of Confidence And Stick To It
One of the most frequently referenced terms by Warren Buffet is one’s circle of confidence. This refers to the areas of insight and expertise that you know and understand to a far greater capacity than others. You don’t need to be the world’s best expert in a field to trade successfully but sticking to your most competent areas of understanding that you can discuss and reason without a shadow of a doubt gives you the best chances of making a good pick and not ending up lost in the markets later.
Seize Great Opportunities & Do It Al Large-Scale
Buffet is a firm believer that our opportunities in life are limited. Across all avenues and the whole span of our lives, the inspiring investor feels that we should imagine ourselves as having no more than twenty opportunities. With such a few chances to grow wealth or seize success, it’s vitally important to seriously contemplate our choices and seize great opportunities when they arrive. Buffet believes one must act quickly because these golden moments are quick to pass. He also reminds us that doing something small-scale is as good as not doing it at all, so think big and act bigger.
Hold Until A Company Shows Fundamental Change
Once you’ve made an investment, Buffet advises that you hold until the company you’ve invested in changes the way that it fundamentally does business. If there isn’t a base-level change to the type of products supplied, the markets addressed, or basic business practises, then there isn’t a good reason to sell.
Attempt To Buy At Below Intrinsic Value
While determining the optimal model for intrinsic value can be a matter of debate, to invest like Warren Buffet, you’ll have to try to invest at below intrinsic value nonetheless. Decide the model that suits your analytics style best. Whether it’s a dividend discount, residual income or a discounted cash flow model, evaluate whether the stock is valued higher or lower than its market price. Once you’re relatively certain that the asset is overvalued or undervalued, it’s easy to weed out poor investments while doing further research into viable opportunities.
Cash Is Never A Good Investment, Put Your Money To Work
The old adage “cash is king” is an outlook that’s best left well in the past and forgotten. If Warren Buffet is correct, and he most often is, cash will eventually become worthless over time. Buffet believes cash to be the worst long term investment but reminds us that it’s vitally important to have some cash on hand so that one has a level of comfort. Research from The Motley Fool proves that cash has averaged a negative real, after-tax return when analysing compound annual returns between 1926 and 2012. Stocks, after inflation and taxes, granted an average of 4.5% return, whereas cash after taxes and inflation leaves on at -0.5%. That’s right, over 86 years, cash became literally worthless.
Invest In Productive Assets
Productive assets are investments capable of generating profits and steady cash flow. If an asset can generate a return, it’s a productive asset. Look for stocks that can produce dividends while at the same time rising in value. Good examples of productive assets are dividend-paying stocks and companies like farms. Non-productive assets like platinum and gold are purchased with the sole hope that the price will increase enough over time to generate a windfall. Most of us will be investing in stocks, not entire businesses like Warren Buffet, but productive assets still offer immense potential to any portfolio by generating consistent, ongoing revenue.
Invest In Yourself
Time and time again, Buffet urges eager investors to invest in themselves. It’s not only a booming stock portfolio and overflowing bank balance that indicates growth. The more one pushes oneself into new areas of study and experiences, the greater one benefits from total enrichment, granting skills and insight that splashes over into business. Invest in things like communication skills and leadership that improve you as a person, not only as an investor.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only