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By: George Lamb
The world of investing can be a scary place, from the charges that are involved with diversifying your portfolio to the potentially devastating risks that can drain your pockets dry. On top of that there are thousands of investment funds on offer, so finding the right one can be quite the tricky task. To make matters even worse, investing can become unhealthily addicting if things are going well for your portfolio.
This may lead to overconfidence, or even cockiness and an eventual loss of assets if you don’t keep a level head. But if you’re comfortable with risk and are able to tie up your money and invest it for the sake of bigger returns, then you may start to resemble Warren Buffet.
The bigger the equity, the bigger return, but before you consider handing over your life savings, with the help of Mr. Buffet himself, I’m going to share some crucial advice as to how to spot winning investments before the crowd. But before we proceed with some fabulous quotes I need to express how imperative it is that all investors have a financial plan.
Keep in mind that smart investing isn’t a get rich quick scheme, but rather a process that allows investors to reach their financial goals through a meticulously crafted plan. It would be ideal to give yourself financial constraints paired with a strategy that targets financial products that help you couple those goals with those constraints. This means that depending on the experience level and size of the bank account, different investors may cultivate and execute a variety of investment strategies.
Typically, the type of investment varies with age–older individuals may want to execute a strategy that maximize returns to supplement social security income, middle aged individuals may want to pursue a method that involves asset appreciation, and younger individuals may prefer to invest liquid assets to pay for college or the mortgage on a new house.
All this is just a generalization, though, so if you feel you want to get a lot back and fast, then feel free to opt for a strategy that that betters your chances of a big financial return–just be sure to have a plan before proceeding, or you may find yourself on the back end of a rotten decision. But…to avoid such a fate, I will entrust you with a few quotes from the genius stockbroker himself.
#1) “Master the Basics”
“To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In my view, though, investment students need only two well-taught courses – How to Value a Business, and How to Think About Market Prices,” Mr. Buffet wrote in Chairmen’s letter back in the year 1996.
#2) “Think Long Term”
Another from Chairman’s letter 1996: “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
#3) “Always be Liquid”
“I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits,” Warren buffet said in a letter to shareholders in 2008.
#4) “Invest in Businesses that Can be Run by Idiots”
Business Insider: “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.“
It’s always tough being a beginner at anything. What are some ways you overcame being a novice Investor, and how long did it take before you hit big? We’d love to know, Share all the amazing details!