The name of Warren Buffett can be often met in mass media since one can really tell a lot about him. Even people who have nothing in common with investments and finances are willing to listen to his jokes and can’t help wondering how hardworking this undoubtedly remarkable person is. One way or another, everything Warren can be proud of now is a result of his persistence and non-stop searches of better rules of the game which will not be spoiled as time passes and will not sink into oblivion…
Of course, the man who would cultivate investment skills in himself with the help of a trial-and-error method to reach the top of the richest people of the world (2008) later on accumulated many things to be shared with a younger generation of investors. That’s why I would like us to start a series of articles about famous investors with consideration of Buffett’s phenomenon…
A skillful son of the stockbroker
As you might have guessed, Warren was surrounded by people, from whom he could learn the art of successful investing (his father speculated on the stock market too), but he decided to feel the wisdom of the stockbroking business on his own. The first attempt of selling three bought stocks of the Cities Service Preferred company was a success, however profits were scanty compared to what he could have gained one week later.
As for his further activities, they are running his own business (a land lease/maintenance of once broken automatic machines) and finally, excitement with the securities market. Probably, at this moment a future billionaire begins to realize that it’s not quite difficult to be an investor, even a successful one. He used The Intelligent investor book by Benjamin Graham as basic lecture notes in comprising his own investment history. Meantime, he resurrects a hardly functioning Berkshire Hathaway plant (and turns in into the gold mine) and every time he finds proofs of the fact that principles pursued by him are correct.
Everything genius is simple…
Buffett’s personality is lacking pomposity, and the same thing concerns his investment philosophy. That’s the way to be followed by everyone who wants to gather wealth to feel “cheap in an expensive suit” and sacrifice half a fortune to be still considered the richest financial magnate in the world.
1. Don’t postpone investing till tomorrow, do it today. Warren excellently coped with restricting his egoistic wishes (he spent less money than he earned, and advised everyone to do the same) and he was more willing to invest money that could have been spent on his own needs (clothes, entertainment, etc.) in promising enterprises. Here is how he managed to gain 200 000% from his initial capital to the amount of 100 thousand dollars after 35 years.
2. Don’t invest money into tools, which are unclear and unpleasant for you. Before estimating all pros and cons, you need to clarify whether you realize the essence of the tool to be used for generating profits well enough. Each investment sector (HYIP, PAMM and so on) has its nuances, and it is inadmissible to forget about them. At the same time, Buffett never dealt with those companies/projects, products/investment objects he did not like.
3. Don’t follow the trend – take a look at companies that don’t develop that fast. A mass demand for a certain investment product finally leads to losses. Consequently, Warren was confident that he had to consider it before it was not that popular. The textile plant, which a famous investor virtually got out of bankruptcy, could be a visual example.
4. Before being absorbed in an investment field, think whether the game is worth the candle or not. As a person who was dealing mainly with stocks, Buffett did not invest money in companies just based on his feelings. The base for taking a decision in favor of this or that object was “bare facts”, analysis of company’s history in the long-term outlook and estimation of its current popularity (see rule #3). Sometimes it happens that the things you see with a naked eye are violated in the course of a details examination…and vice versa.
5. Coolness is a guarantee of successful investment. The magnate used stocks as an example and showed that it is not worth trying the investor’s part even for 10 minutes if you are not ready to patiently possess the stock package within 10 years. Think in advance and don’t concentrate on short-term success (if your investment tool allows it).
6. Look for winning stocks. Primarily, this rule foresees the analysis of the current situation in the sphere you’ve chosen. This analysis helps making forecasts in respect of growth tempo of stocks in some company. You need to discover the enterprise, which can overcome competitors in the future, in proper time.
7. Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. All of us know well that every kind of investment is surely followed by risks, so the best way to reduce probability of losing money is not to tempt fate. Warren Buffett is not keen on gambling himself (expect bridge) and he does not advise others to lose money, where it is possible to avoid risks.
8. Success in the investment sphere depends on how realistic an investor is while estimating his knowledge. Of course, it’s impossible to know everything, but none forbids you to widen the borders of your knowledge to necessary limits. Even if you work in one direction, you have to invest such an amount of money that can bring profits thanks to a sane evaluation of your knowledge in the work field.
9. The investment business likes order and shares friendship with pessimism. I have happened to witness many examples of how order in running business leads to getting regular and stable earnings. The investment activity is no exception. You’d better start with minimum investments (keep in mind diversification rules). In such a way, you will be able to control them in action and to never lose mind in euphoria after a successful deal. Some pessimistic mood is welcomed here. Who flies high, falls deep. That’s the way of Buffett’s thinking.
10. A man makes money, and there is no other way. Surely, you can consider opinions of your colleagues/experts, but you should create your fate on your own. Only people who make a profit out of somebody else’s labor can earn money without applying any efforts (their financial path is short). Serious people set goals and realize that their future social status depends solely on them.
11. Beware of consumer credits. Buffett was against using credit cards while calling this tendency “a social plague of modernity”. And an unarguable proof is that today your job will be over and tomorrow you will be still in debt. The necessity to rely solely on himself helped a financial magnate build a worthy investment career.
12. Success is something more than fortune you possess. This is a condition of your soul. The one, who finally becomes independent in the financial aspect. realizes that success is not one’s bank account balance. It is important to do what you like and enjoy it. It’s Warren’s essence.
13. Generosity and fortune walk together. The person who will not transform beyond recognition after his/her bank account balances grow can become a remarkable investors. Nobody else can. Buffett, a famous philanthropist and benefactor, never stints on generous donations (in 2006 he transferred half a fortune to the Gates Foundation) and believes that it only favors his capital growth.
Certainly, an inexperienced investor has to apply a lot of efforts and be patient in order to approach Warren Buffett’s level (both financial and philosophical ones). However, principles, by which this famous investor lives and creates, can serve as a good theoretic basis on the way to future practical makings. He has managed to prove that any business, even an investment one, starts with few things – desire, a small capital and a bit of luck…Смотрите так же по теме: