Warren Buffett’s 8 Incredible Billion-Dollar Secrets to Investing Money
Every wannabe investor I know know or at least heard of name Warren Buffett. There’s no doubt it, Warren Buffett is the world’s greatest investor. And nothing is more precious than reading about his top 8 secrets in investing!
- Go for a Business that Any Idiot Can Run
As Warren Buffett puts it, “A ham sandwich could run Coca-Cola.” Sounds harsh? Not really. Believe it or not, it’s actually a compliment. As a matter of fact, Coca-Cola is the biggest stock holding of Buffet’s Berkshire Hathaway.
- Always Have a Margin of Safety
Thanks to Buffett’s Mentor, Benjamin Graham, we now have Buffet’s most famous tenet: “Always have a margin of safety.” This simply means that when buying companies, buy at price that’s well below your best estimates for the stock’s intrinsic value.
- Understand the Business
In Warren Buffett’s own words, ”We like things that you don’t have to carry out to three decimal places. If you have to carry them out to three decimal places, they’re not good ideas.”
You don’t really need a 20-tab excel model that estimates a company’s value. What you actually need to succeed is a sound understanding of the business — sound enough that you can feed in positive assumptions as to how it will perform in the future.
- A Stock is the Shadow of It’s Company
Again thanks to Graham, we now have the tenet: “A stock is the right to own a little piece of a business.” Keep in mind that at the end of the day, a stock is nothing but a shadow of its company. If the business fails, the stock will drop. If it succeeds, the stock will go up. So don’t choose the stock — choose the company.
In an interview, Buffett was asked what’s the most important key to his success was. His answer was simple: “Focus”. (And yes, Bill Gates answered the same way too!) Warren Buffett did not became successful overnight. His success was due to endless hours of analysing stocks for years!
- Know When and How to Act
This statement from Warren Buffett perfectly summarizes my point: “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
- Look for a Moat
You know what a moat is right? In medieval times, moats — wide, deep ditches typically filled with water — surround castles or towns for added protection. The same principle applies to stocks. Look for companies with sustainable competitive advantages. For instance, Coca-Cola (brand) and UPS (strong logistics network).
- Believe in the Power of Compounding
Do you know that Buffet’s definitive biography is entitled “The Snowball”? Cool huh? Well, it makes perfect sense. Warren Buffett is a firm believer of the power of compounding interest. He started investing in his pre-teen years. He bought stocks that are long-term performers despite the low returns. And now, look at where he is!