1. Have longer term view
Buffet says money doesn’t grow overnight. ” No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant. ” So your investment planing should be done by considering longer terms goal. People go for futures & options with the hope of making quick money but they are actually the one who loses more money than average investors. All the big names who have made good money from the market are long term investors only. Buffet never did intra day or positional trading. Buffet also says if you cant own the stock for 10 years don’t even own it for 10 minutes.
2. Prefer quality stocks than cheap stocks
Lot of investors buy stocks just because they are cheap without understanding that cheap is not always better. Buffet learned from Charlie Munger that “it is far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.” Chances of losing money in cheap stocks are very high comparing to investment in a fairly valued stock.
3. Have Contra View
Warren Buffet says “be fearful when others are greedy, and greedy when others are fearful.” That means buy when there is panic in the market when everyone is bearish. Sell when everyone is bullish on the market. Most of the people fail to follow this because of excessive fear when the market is going down and excessive greed when the market is going up. When the market is going up everyone speaks only about the positive side which increases the greed that makes people to carry their long position and also to take fresh position at higher levels. Fall from the higher levels is always very intense and most of the traders lose money.
The same goes when the market is falling down. During panic all experts and media talks only about the negative side. They speaks as if the market will always continue to fall forever. People keep waiting for the stocks to become cheaper and ultimately miss the right opportunity to buy.
4. Don’t invest in any company whose business you don’t understand
Many people invest their money just by hearing anything good about the particular company from others. By understanding the business, you can determine if there will be any associated financial problems in the future. There are many companies in the stock market whose business can be understood by any normal people.
5. Think like an owner
Evaluate stocks exactly the same way as if someone offered to sell you the entire company. Thinking like an owner changes your whole perspective on stock investing. If you are going to own a new car, you will think about its fair valuation, you will think about its features and you will compare it with cars offered by other manufactures from the same segment. Then after checking everything you will decide which one to buy. Like wise you should have same prospective with stocks.
6. Stay away from hot stocks
Some stocks always remain in news and grabs the attention of many. Stay away from such stocks which are highly volatile. Warren Buffett 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.
7. Don’t keep the loss making shares.
When the share price has fallen down by 50%, many people choose to wait. They convince themselves and others by saying “It will definitely come back”. And many times people quickly book the profit when the stock price goes up by just 10% . If the fundamentals of the stocks become poor, exit it immediately don’t wait for anything and never average it. And stay invested if the fundamentals and future prospectus are strong. Don’t be in rush to book small profit in such stocks.
8. Avoid Borrowing
You can buy anything by taking loans and borrowing money, but you become rich by living on borrowed money. People initially think that they can manage their debts but not everyone can do so. One needs to have a solid plan to pay the debt back and not become its lifetime slave. A debt-free life is the best life. Buffet says I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.
9. Spend you money wisely
Money saved is money earned. Warren Buffet says If you buy things you don’t need, you will soon sell things you need. Humans have the urge to have all the luxuries of the world . Every rupee spent on unnecessary urges contributes to lost wealth. Before spending money on anything ask few questions to yourself. Do I really need this? Am I overspending? Can I save some money without compromising on the value I want from a particular product/service?
10. Always be prepared for the worst.
Stock market is a place where nothing is certain. So always be prepared for the worst. Many tragedies can happen overnight that can destroy your capital. Problems doesn’t gives any warning before coming. Always save some funds for emergencies and never expose your full capital in any investment option.
By Warren Buffet
