Warren Buffet might just be the most successful investor of our time. His pragmatic approach and uncanny sense of market behavior has led many people to be curious about his investment philosophies.
However, the man himself is rather direct in his approach and has a very clear objective goal behind every investment. Here are a few tips that come from the Warren Buffet school of thought:
Think of Stocks as a Business:
Buffett has stated he believes stockholders should think of themselves as “part owners” of the business in which they are investing. He advises to analyse all the aspects of the company whose stock you’re buying. He asks a puzzling question, ‘Would you buy the whole company if you had the money?’
Be in the game for the long haul:
The market in the short can be very unpredictable. In the long run however, the true substance of the company’s stock pans out. Buffet advises that looking at short-term strategies in the market won’t be a successful strategy.
Look for bargain stocks:
Buffet advises against investing in stocks purely on the basis of recommendations or tips. You need to do your own research and analyse important aspects of your investment. He advises to wait for the right time to invest in the stock – when the stock is available at a very high bargain price.
Of course, if it’s too difficult for people to analyse and assimilate the on-going of stock, they should approach the experts. Go to a financial planner or a wealth manager who is capable and is also customer centric.
Scrutinize the Company’s Management:
The company’s management makes all the important decisions. Their decisions have a direct impact on the stock price. The management needs to be effective in terms of utilising its resources, manpower and money. An efficiently run organization will give good returns on capital and equity.
Beware of market trends:
There are always ‘hot stocks’ which are in the news or have dangerous market trends such as severe price volatility or high trade volume. Buffer advises to stay away from such stocks. He once said, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
Return on Investment:
You need to calculate the potential return on your investment before putting any of money actually into the market. The reason you need to do this is because you need to understand the potential of your possible returns. In fact, Buffet once remarked that unless he sees a high probability of at least 10% pre-tax returns, he won’t fully dive in.
Cut off the dead wood:
A lot of investors keep loss making shares with them and sell off the shares that make even a miniscule profit. According to Buffet, people need to do things the other way round. People need to hold on to stocks are slowly but steadily giving more returns and sell off stocks that are going downhill.
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