You’ve probably heard of Warren Buffet
, the well-known investing guru, who has amassed one of the greatest portfolios in history over his career as an investor and businessman.
But how can you invest like warren buffet?
How does he do it?
This article will tell you all about the investing strategies of Warren buffet and how you can use them to build wealth in your portfolio.
How to invest like a warren Buffett
If you want to become a successful investor, it’s helpful to study how Warren Buffett invests.
Buffett is one of the most successful investors in history.
Over 50 years, he has averaged annual returns of 25%. By following his principles, there’s no reason why you can’t achieve similar returns.
The following are some of the Warren Buffet investing strategies.
Invest in what you know
Warren Buffett says he looks for businesses he understands, which helps him identify promising investment opportunities.
If you don’t have a thorough understanding of an industry, find one that piques your interest and spend time researching it.
It will pay off over time.
The better you understand a company’s operations, financial situation, and competition—and how these factors will affect its future—the more confident you can be in your purchase.
And if things go south, at least you’ll know why.
As Warren Buffett says: What is smart at one price is stupid at another.
Don’t listen to loud noises
Warren Buffet is arguably one of, if not the greatest investors in world history.
It is hard to find fault with a man who has been called one of the most successful investors of all time.
Someone who could earn over 50% returns on an investment over a 10 year period (from 1965–1974). At 91 years old Buffet shows no signs of slowing down, as he continues his quest for beating stock market
How does he do it?
Does he use insider information?
Or perhaps some secret algorithm that makes him billions each year? Nope.
His secret weapon is much simpler than that.
He doesn’t listen to anyone or anything but himself.
Keep it simple
One of Buffett’s greatest strengths is his ability to focus on simple things.
He looks for companies with stable, consistent earnings, run by honest managers, and trading at a fair price—which are easier said than done.
The trick in investing is just to sit there and watch pitch after pitch goes by and wait for one that’s high and inside, he said in his 1987 Berkshire Hathaway annual shareholder letter.
For many investors, Buffett’s advice is sound: Staying focused on what you know will help keep emotions out of it.
If you do your homework—really get to know a company—and stay rational when weighing its strengths and weaknesses versus its price, chances are your investment will work out as planned.
Think long term
One of Warren buffet key investing strategies is known as thinking long-term.
Buffett explains, The first rule is not to lose.
The second rule is not to forget the first rule.
It makes sense—if you hold onto investments for a long time, and they perform well, you can reap tremendous gains in value over time.
But if you panic when things look dire in a financial downturn and start cutting your losses, you could end up paying dearly for your mistakes.
In volatile markets where hundreds of dollars can be lost or gained in mere minutes, it can be easy to panic and sell too quickly—and never realize just how much profit was possible if only we were willing to think a little longer term.
Know your circle of competence
According to Warren Buffett, it’s important for investors to know when they have no business trading a particular asset class.
The trick in investing is just to figure out that you’re thinking about something outside your circle of competence, and then don’t do it.
It helps if you figure that out sooner rather than later.
Once you do, you can move on—because once something is outside your circle of competence, then there are no right answers anyway.
You should never feel guilt or shame over mistakes or omissions—just learn from them and then forget them.
Don’t put all your eggs in one basket
If you put all your eggs in one basket, you’re risking a big loss if something happens.
And it’s an analogy for investments—if you put all your money into one company that goes bankrupt, you’ve lost everything.
This idea is what keeps Warren Buffett up at night; he knows his portfolio could be wiped out by a catastrophic event, like 9/11 or a major recession.
That’s why he tries to keep his investment strategy
diversified with holdings across different sectors and industries.
That way he only risks a small percentage of his portfolio on any single company and can help manage risk—because over time, when done right, diversification pays off.
Invest like you are buying the entire company
One of Warren Buffett’s most famous tips is to think of yourself as buying an entire company when you make an investment, and it’s a good idea to keep in mind.
After all, if you are buying a stock or bond from a publicly-traded company, then you are, in fact, purchasing a small piece of that business.
So how does that translate into action? For one thing, you should focus on companies with sustainable competitive advantages—otherwise known as their moats.
know the difference between price and value
Most beginning investors think that a low price represents a good investment.
But that’s usually not true.
Warren Buffett has said that It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Or, in other words, don’t be distracted by low prices.
Instead, focus on valuations (that is, how much is something worth?) and companies with strong business models and competitive advantages.
Key Principles of the Warren buffet investing strategies
How to invest like warren buffet—Here are a few key principles of Warren Buffett investing strategies that we can all adopt:
1. Don’t follow your investments too closely:
One of Buffett’s primary investment mantras is to be greedy when others are fearful, and fearful when others are greedy.
In other words, there’s rarely a good reason to sell stocks at a loss or buy more when your investments begin tanking. Remember, you want these stocks for long-term growth potential–you should treat them accordingly.
2. Be prepared for short-term hiccups:
When you talk about how Buffett makes money, it usually sounds pretty straightforward. He buys companies at rock bottom prices and holds onto them until they turn around.
3. Understand intrinsic value:
An intrinsic value calculation will look at a company’s fundamentals — such as earnings, sales trends, and competitive positioning –and determine whether its price reflects those fundamentals accurately.
Warren buffet investing strategies are simple: buy shares in good companies and hold them for long periods of time.
Investors will be rewarded for such a long-term approach.
As explained by Buffett in his 1999 letter to shareholders, The size of our bet will typically be in direct proportion to our confidence level. Big opportunities come infrequently.