Investing like Warren Buffett is certainly not easy, but using some of his basic principles makes a lot of sense. Don't expect to get the amazing returns that Buffett has, but use his bottom up approach to finding stocks that have value in order to prop up your bottom line.
Warren Buffett has become the most famous investor in the world by being extremely successful finding valuable companies trading at a discount. Buffett credits his mentor, Benjamin Graham, as the reason for his successes. Understanding the basics of Graham and Buffetts philosophy can help you be much more profitable in your investing. Ben Graham's Security Analysis and The Intelligent Investor are both books that help provide some of that much neededed information.
Stocks or businesses? One of the keys to investing like Warren Buffett is understanding that you are buying businesses and not stocks. When you buy a stock you are becoming a partial owner in that company, meaning you have a stake in their success. Don't treat it just as a piece of paper or something from your computer screen, but rather a business you have a large interest in.
Invest and do not trade. Warren Buffett believes completely in buying undervalued companies and holding onto them for the long run. Buffett believes that things such as derivatives are harmful to the normal investor and that day trading isn't the way to make a living in the stock market.
Can this company coin money year after year? Understand a company's economic moat. A company is said to have economic moat when it's cash flows are protected from competition. It is a continuous and sustainable competitive advantage that a company has over its peers. Buffett has consistently said that a wide economic moat is one of the most important things in any investment choice.
Keep emotions out of investing and use intrinsic values to guide your investment judgement rather than the pundits predictions. The market often overshoots on both the upside and the downside so Buffett is famously coined as saying "Be fearful when others are greedy and greedy when others are fearful."
- In order to understand Buffett's ideas even better, check out what he owns in his own company, Berkshire Hathaway.
- Do not get trigger happy with stocks. Allow your investment to have time to play itself out.
By ehow.com
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