The Buffet Way
Known as the “Oracle of Omaha,” Warren Buffett is one of the most successful investors of all time and also one of the richest people in the world.
Here are some of the tips he gives to investors
Rule No.1 – Never lose your money.
Rule No.2 – Never forget Rule No.1.
Like all great life lessons. Warren Buffett’s formula looks simple: Yet simple is not easy. It requires great discipline to execute.
The control of emotions and strict adherence to rationality must always be at the heart of all your investment decisions.
Before you invest listen to what the Oracle of Omaha advises:
Always restrict yourself to your ‘circle of competence· – a business you can understand and analyze. First, analyze the business before the market the economy or investor sentiments. Next look for consistent operating history. Finally, use the data to ascertain whether the business has long term profitable prospects.
Always ask 3 questions about management:
Is management rational? Are they THINKING OF YOUR RETURN ON EQUITY or THEIR return on Ego?
Is Management honest? Would they admit it if they made a mistake?
Does management Resist me – too Strategies? Can they go against trends if the data says they should?
Focus on Return on Equity as well as high profit margins. Buffet also focuses on what he calls owners earnings· which is essentially the cash
flow available to you from your investment
Always look for an excellent investment whose price is way lower than market rate.
However. never compromise excellence for anything for it is better to buy an excellent investment at a fair price than an average investment at an excellent price.
The investment you buy must always have a “moat” around it – that is something that gives it a clear unfair advantage over others to protect it against competition and risk the biggest eroder of compounding.
Before thinking about a Return ON your money. you must focus on return OF your money.
Rule No.l – Never lose your money.
Rule No.2 – Never forget Rule No.l.