Have you ever imagined if you could invest using the strategy of someone who was already the richest person in the world? It would be a dream, isn’t it? In the end, knowing such a method could completely change your quality of life.
However, many investors do not know, but yes, that is possible. The philosophy of billionaire Warren Edward Buffett is widely spread, thanks to the lessons of his famous letters to Berkshire Hathaway shareholders, his own statements, and the various books on him.
Thinking about it, in today’s article, we are going to talk about: The secret investment strategy that made Warren Buffet billionaire. In addition, we will analyze how to apply this strategy in your day to day financial life. Read on and take a look!
A Quick Introduction To Warren Buffett
He is an American investor well known in the world financial market. He is consistently listed among the richest people in the world. In addition, he is a philanthropist and principal leader of the Berkshire Hathaway company.
Warren Buffett was born in 1930 in Omaha, the son of a stockbroker and the grandson of a food entrepreneur. The contact with these two universes nurtured in the boy, from an early age, a great passion for investments and business.
At just 14 years old, Buffett was already filing income tax and seeing ways to get deductions. In his teens, he went into various endeavors, including customizing cars and restoring golf balls.
At age 15, he saw an opportunity and decided to invest $ 25 in a pinball machine to put in a hair salon. It didn’t take long for the young man to possess dozens of those gadgets scattered throughout the city.
Why take inspiration from Warren Buffett to invest?
What makes Buffett a unique benchmark is the fact that, although he has been extremely successful in his investments, reaching the greatest fortune in the world in 2008, his strategies have always been very simple.
However, most people believe that investing must be complicated and that investing well takes hours at the computer, analyzing complex charts and confusing spreadsheets. However, Warren built his several billion dollars by doing the exact opposite.
With that, it is possible to perceive that anyone with the right mindset and instruction can achieve excellent results without the necessary complex theories. He came from below and built all the great capital that he owns just by applying in companies that satisfied the conditions established by his model.
The Secret Investment Strategy That Made Warren Buffet Billionaire
The method used by Buffett is the Value Investing philosophy. While studying at Columbia University, Buffett met his greatest mentor: Benjamin Graham. It was fortunate for him that he learned that strategy.
The method consists of separating the concepts of price – how much you pay – and value – the amount that the item is worth.
Next, you look for companies that have a high value, yet for whatever reason the stock price is low. Normally, this situation occurs in times of market panic and herd effect. In identifying businesses in this condition, Warren Buffett looks at various company issues, including:
- Is the product easy to sell?
- Will it be profitable?
- How’s the demand for the item
- Is the company easy to manage?
Based on that, he selects the options that showed promise and becomes a partner through the stock market.
It is important to note that Buffett always prefers simple companies, as well as the ones he knows and understands: not just the product, but also the market.
How to apply this strategy in your day to day?
Bringing this method to your daily investments is easier than you might think. First, forget the idea that the time to buy stocks is determined only by complicated price charts and indicators.
You must invest in business and not in quotes. It is necessary to look for solid companies with simple, durable and profitable products. Choose products and markets that you understand well.
After identifying businesses with growth prospects, wait for moments when panic or market mood plays the stocks of those companies down. At that point, take the opportunity where the price is below value and just buy!
Price tends to go towards value; therefore, if the price is down, the stock will appreciate and you will reap the rewards.
What are the benefits of using this strategy?
The great advantages of this strategy are the potential for high profits and the possibility of acquiring shares in large companies, even if they do not have much capital available.
Good companies generally have highly valued stocks and, consequently, high prices. This makes it difficult for the investor with the shortest money to acquire a good number of lots, as they are sold in sets of 100 units.
For example, each share of the company was priced at 5,000 Rs on the market. After the crisis in a specific year, the price fell to 1,500 Rs. Then, in two years, it returned to 4,500 Rs.
This shows that whoever bought at the time of the panic (@ 1,500 Rs) could have obtained good returns. In just 2 years, a gain of 200% of the invested capital. That is, if you had invested Rs 30 lakh in that company’s shares in 2008. Thereafter in 2010, if you sold, you would be with Rs 1 Crore in your account.
A balance of Rs 70 lakh of profit, equivalent to a monthly salary of Rs 2.5 lakh in the period. Isn’t it interesting.
In fact, knowing which strategy to use to invest can seem challenging. After all, many times we have in mind that it must be something difficult and complicated. However, after looking at Warren Buffett’s investment philosophy. It is very easy to see the benefits of applying that model. Plus, it is possible to achieve very high returns with an extremely simple method.
10 Warren Buffett Principles [How To Invest and Make Money]
Many investors wonder about investing like Warren Buffett. Details about the Investing in Value strategy can be found in any Basic Finance textbook. So … what is it that differentiates Warren Buffett from 99.9% of the rest of the investors?
To answer this question, Buffett developed a list of 10 principles for successfully investing in the Stock Market. According to himself, these are the rules that he has followed for all these years.
Don’t invest in a company, if you don’t understand its business:
Buffett is known for not getting into business models that he doesn’t understand – for example, he’s a huge detractor of cryptocurrencies.
If you panic when you see 50% of your investment fall, you should not invest in the Stock Market:
Buffett refers at this point to the extreme fluctuations that financial markets sometimes show, and that as an investor, you must be willing to see violent price swings, which requires great courage.
Much of the success can be attributed to inactivity:
That is, a large number of investors do not resist the temptation to buy financial assets and sell them once they have achieved a minimum profit, nor can they resist themselves to not sell the asset if it goes down. Buffett says that in contrast to this attitude, the investor’s focus should be deep patience, almost bordering on laziness.
Buy stocks in companies with good earnings records and a dominant market position:
Whenever possible, Buffett invests in companies that have dominant brands and are sources of large profits.
Be fearful when others are greedy, and vice versa:
This is an interesting point from Warren Buffett’s investment philosophy, because what he is trying to say is that a successful investor should not follow the prevailing volatility of the market, but go against it. is. In other words, buy when everyone is selling, and sell when everyone is buying.
Optimism is the enemy of the rational investor:
How many times does an investor fall in love with his own idea about a business? At this point Buffett emphasizes that a good investor must be rational in their decisions. Only invest based on concrete data and solid analysis, optimism about a financial asset is a bad way to invest.
The ability to say “NO” is a key advantage when investing:
To understand this point, let’s take an example, the Trading Ideas section presents many good ideas for investing, objectively, all of them are good. A good investor will select only those that he considers will provide the greatest returns, and will not invest in all the ideas that come his way.
The violent fluctuation of the price of an asset is related to the behavior of investors, not to the company itself:
Many times the price of a share rises exponentially, or falls violently, Buffett postulates that this is because investors negotiate anxiously, and this makes asset prices move. The performance of a company is rarely in line with the movement of the share price.
Always Invest for the Long Term:
Buffett posits an investor should not “Rent the shares” but should “Buy a business.” Throughout his career, he has been an investor who has made very few sales decisions, which is why he has always analyzed his purchases exhaustively.
Knowing this, now you can bring these strategies and principles into your life and do financial practice with much more security and profitability.