#1 – Invest In Yourself
Warren Buffet believes the best investment you can
make is always in yourself. Invest in your own abilities. Anything you can do
to become better is a smart thing to do.
#2 – Never Buy Into A Business You Don't Understand
As an individual investor you should never invest
in a business you don't understand. Instead you should focus on the things you
do understand. Warren Buffet was quoted as saying, “There are all kinds of
businesses that [longtime partner and vice chairman of Berkshire Hathaway
Charlie Munger] and I don't understand, but that doesn't cause us to stay up at
night. It just means we go on to the next one, and that's what the individual
investor should do.”
In other words, don't waste time and money trying
to figure out businesses you don't understand.
#3 – Participate In Total Diversification
Unless you are a professional investor and have
100% confidence in the investments you make, your focus should be total diversification.
Buffet believes most individual investors should invest in a broad-based index
fund that tracks the S&P 500. Keep in mind the economy will always bounce
back over time.
You should therefore take your time so you can
avoid buying at the wrong time and at the wrong price.
#4 – Don't Forget About Competition
Anytime you invest in a business by buying stock,
what you are essentially doing is buying a piece of that business. You should
therefore focus on competition as well. What is the competitive position of the
company you want to invest in? You need to know this information before you buy
any stock in any business.
#5 – Trust Yourself
Warren Buffet advices all individual
investors to divorce themselves from the crowd. It’s very difficult to trust
yourself when you are always around a bunch of greedy and fearful people. While
he acknowledges trusting yourself is a very hard thing to do, he always
believes it’s vital if you want to be a successful investor.
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