Warren Buffets top 5 Investment rules
I always use Warren Buffets’ top 5 investment rules before investing in anything. So never invest in anything unless you follow his rules.
Rule number 1. It needs to be simple, so I need to understand the company or investment. if you can’t understand something, then don’t invest.
Rule number 2. Does the investment have a mote? Google has no competition, so I invest in them. Same for Apple and Microsoft.
Rule number 3. Ignore the stock market price fluctuations. The market is like a manic depressive, you never know what it will do.
Rule number 4. You don’t get rich quick, it happens over time. The problem is people want to get rich today.
Rule number 5. Look at intrinsic value. That’s the value of what a company will earn over 10 years. So when I value a company, I look at the cash the company will make over time.
Mr. Buffet talks about many other things too besides these 5. Be careful when investing in liquid markets. So a liquid market would be the stock market for example. I used to look at the stock market as a place to trade stocks. This is a huge mistake because trading stocks is like gambling at a casino.
Stock brokerages like Interactive Brokers, the one I use lends me money. They will lend me 3 to 1 for every dollar I deposit into my brokerage. So If I deposit $10,000 they will lend me up to $30,000, so I have $40,000. Because they charge me a rate of about 3.5% on that money. That’s why they loan it to me.
Stock Brokerages are money lenders
Stockbrokers like Interactive Brokers loan me money which is how they make money. Because stockbrokers no longer charge me fees for each stock transaction I do. So the more I loan the more they make. Moreover, it makes me think I have more money to play with an investment in the market. This is a fatal flaw because it’s their money, not mine.
Follow Warrens Rule
Firstly, when I follow Warren Buffets’ rule I look at the company to decide if I want to buy it. Secondly, I decide that buying stock in Apple for example is a company I want to own a part of. Thirdly, after I buy the stock and own the company I try not to look at the price, which fluctuates daily. More importantly, I now own part of a company and not just a stock symbol or certificate.
The hard part of investing
So the hardest part of investing in liquid markets like the stock market is not buying and selling stocks. If I do that, then I am a trader, not an investor. Therefore I need to decide if I am a trader or an investor. I am an investor because that’s where the real money is for me. Warren Buffets’ rules also apply to non publicly traded companies too.
My biggest money comes from businesses that I own or control outright. Therefore privately held small businesses make me way more than I make in the liquid stock market. There are several reasons why this is true.
For instance, when I own a company outright, I get all the profits of that company. I don’t have to wait for a dividend to be paid to me every quarter, or 3 months. So I look at Buffets’ rules for private businesses the same way I look at public companies. All 5 of his rules apply.
Therefore all my private companies I own or control are simple to understand and operate. They are niche market businesses like computer asset recovery for example. Or real estate located here or abroad. There is no public market so I don’t have to look at the manic stock market. So I focus on net profit income.
Intrinsic value is the key
My privately-owned companies have the intrinsic value and it’s easy to calculate because it’s small. Therefore unlike public companies, I or the family get all the profits. Therefore the profits are generated daily and the intrinsic value shows me the earning power over 10 years. So the company value is based on this factor or 10X the profit generated today.
So when investing look at Warren Buffets’ rules. If you follow his rules and stay focused on your investments, you will always make money.
Simple is not always easy. So I will ask you guys to follow Warren Buffets’ top 5 Investment rules That I talked about above!!