Buffett famous as an investor, started with initial fund of 1,05000$ in 1956 and lo it became or grew to $40 billion by next 50 yrs!!!
The bulk of Buffet's wealth was built through intelligent use of leverage offered by his insurance companies.
Long term investment checks your patience,calmness,the ability to understand the complexities of accounting and finance.
But once you are able to pass this test there is no doubt that the result will be fruitful and the proof is in front of us!
Many long term investors follow the guidelines of Warren Buffett.
Some of the guidelines that i have listed are:
- Always invest in business,not in stocks.Confused? The meaning of investing in stocks is buying a stock since its going up or becauze my friends or relatives have suggested it as a good stock!
But in Buffett's approach he doesnt do this.He analyses carefully about the company in which he is interested in investing,finds about its fundamentals, earnings prospects, financial health and management.This is called investing in business! So now onwards our stock is our business right?
- Never buy a business which you dont understand.In his words "Why search for a needle buried in a haystack when one is sitting in plain sight?" .
During his 50 year's time frame there where many tecchnology companies which delivered best returns but Buffett didnt buy one.The reason he said was that he was not able to predict or evaluate about the future of these companies.So before buying a company which you dont understand think of what did the richest man do?
- Buy companies which have defensible and strong market position:
Find out wether the company can make progress or raise prices eventhough the customers walk away.If so you can blindly invest in that company because it wont reduce your investment performance for sure.
- Hold for the long term.
Buffett has generated enormous returns with startling regularity. One of the reasons he is able to do so is because he holds for the long term and is not quick to enter or exit businesses.
For example Buffett was stuck with WPC for 2 years.In these two years the price fell below his purchase price but he didnt sell becauze he knew the fundamentals of the company and he was right ofcourse.When it became profitable he didnt sell it soon because again he knew the company had the potential to raise price to further heights! This is the patience needed while doing business.
- Ignore short term fluctuations in price.
Had Buffett gotten jittery due to short-term price fluctuations, he would have been a lot less richer than he his currently:)
- Buy good businesses when stock are down:
Usually when the market crashes all the stock markets fall and what people do in panic is to sell the stocks.
In 1987, all global stock markets crashed.While all others around him hit the panic button, Buffet bought 10 per cent of Coca Cola for $1 billion.Coca Cola had a great business, great long-term prospects and the ability to expand because of globalisation. By 2006, Buffett had made over $11 billion on Coke since he bought it!
- Diversify, but not over diversify.
Identify a small number of great businesses at the right prices and invest a significant amount of their money in each rather than going for more than 10 stocks.
Hope these tips will be useful for you guys:)
happy investment,happy earning!
