The Investment Principle of Warren Buffet | Investment Series

The Great Investor: Warren Buffet

Warren Buffett is the most successful investor of all time.

His investment strategy has produced amazing results over the years that other investors cannot match. 

Warren Buffet was born in Omaha in 1930 and grew up to be a smart boy.

At only 6 years old, he could already read The Wall Street Journal and by the time he was 13, his net worth was already over 1 million dollars!

He is also one of the most admired and followed people in business, frequently referred to as “the Oracle of Omaha.”

Buffett handles investments for his company Berkshire Hathaway, which has more than $100 billion in cash holdings.

Buffet has built an image of a guy with Midwestern values who gives money away through his foundation, but he can also be tough when needed—when the media or Wall Street critics get too close or talk too much about him.

The secret of his success is to buy good companies at reasonable prices and hold them for long periods of time. 

Warren Buffet claimed that he was an average investor but only if you measure his performance against the S&P 500 Index.

He says that he outperforms the average investor because he has a better definition of what can be called as returns or profits.

Therefore, the investment principle of Warren Buffet has been followed by many.

Warren Buffet is a great investor and the reason behind his success is his unique investment principles.

Today, we want to discuss of the principles that you and me can start to adopt in our investing journey.

Warren Buffet Key Investing Principles

His investment principles have been distilled into 13 simple rules, which have been taught in classrooms worldwide, even in MBA programs.

The first principle is that he only buys great businesses.

Buffet has always focused on buying only companies with good, sustainable business models that are easily understood by everyone. 

The second principle he follows is to buy them at a really cheap price.  He looks for an opportunity where he can buy something at 50-60% discount than its value.

The third principle of Warren Buffet is that he holds onto those businesses for a long period of 15-20 years!

Warren Buffet principles also include the use of cost-averaging, focusing on margin of safety and buying companies at their intrinsic value.

According to Warren Buffet - the principles of successful investing -- is to know what you own, and know why it's worth paying that price.

The most successful investors don't take risks. They use a simple checklist to make the right decisions.

Always look for value in everything, find companies with strong management and always don't let yourself be swayed by hype.

 Berkshire Hathaway’s investment principle is to buy companies that are “easy to understand, with durable competitive advantages and able to make high rates of return.”

The company of Warren Buffet - Berkshire Hathaway has a long-term perspective and houses a number of financial companies like traditional investments, owning its own subsidiary businesses as well as shares in other publicly traded companies.

Warren Buffet’s Investment Principle: If a business does well, the stock is good for the long term.

The Golden Rule of Investing

Warren Buffet has a golden rule when it comes to investing.

It can be stated as simple as "never lose money."

This rule is so important because it guarantees that you will not do anything that is going to hurt your financial situation in the future.

According to Greenspan, when Buffet was asked about his investment strategy he said "Rule No 1 is don't lose money; rule No 2 is don't forget rule no1."

His strategy is to buy a stock and hold it forever, never selling and not calculating his profits until he's retired.

So if something goes wrong and it looks like things aren't going to work out and you're going to lose principal along with the profit, then you sell because that's when you BREAK THE RULE AND LOSE MONEY!

And losing money at least keeps you from losing more money!

So even though Buffet himself doesn't follow his own rule all the time but instead employs a lot of common sense and does what makes sense for him; he still teaches us about the importance of not losing money on investment decisions."

He puts it into practice by buying solid companies such as Coca-Cola and American Express when they are undervalued.

When the market inevitably overreacts, Buffet cashed in his profits.

The investment rule of Warren Buffett can help any individual to build good wealth.

He suggests that the main goal is to preserve capital and avoid losing money.

This means investors should not invest in poor or risky ventures, where they might get negative returns.

The Outcome of His Principles

These principles help Warren to grow Berkshire Hathaway in huge range over time.

His investment principles help him to grow Berkshire Hathaway: he bought companies with strong financials, debt-free balance sheet, high returns on equity and highly paid CEOs that did not engage in ego battles or corporate politics.

During the last 50 years, Warren Buffett has accumulated a gigantic fortune and his company Berkshire Hathaway is one of the biggest companies in the world.

By following these investment principles, even small investors can achieve financial freedom.

You can implement this investment principle in your own portfolio.

The investment principles of Warren Buffet are well known and documented.

His investment strategies are also discussed in detail in various books and articles written by him, for example in the book Buffettology by Mary Buffett and David Clark.

He has written several books, including The Snowball and The Essays of Warren Buffett.

He has also given many talks at various universities and events across the country.

Did Warren Buffet Made Mistakes Before?

Warren Buffett is known for his value investing, but what are the mistakes he has made?

Warren Buffet has the ability to anticipate market changes and exploit them. While he may not always be right, his prescience is legendary.

In recent months, Warren Buffet has lost almost $5 billion on Kraft Heinz’s downturn.

After the deal, Kraft Heinz was the sixth-largest holding in Berkshire Hathaway’s portfolio as of the end of 2018.

Buffet said that he made a mistake in the Kraft purchase in terms of paying too much.

When the billionaire told CNBC in June that “I made a mistake in the Kraft purchase in terms of paying too much,” he added that he viewed his investment as an experience rather than an outright loss.

Why? “I think I got overpaid and now I own an interest in two companies instead of one. And they are really doing quite well and not going to change my life at all,” he said.

In conclusion - you and me can learn quite a number of great principles that we can also adopt in our investment portfolio as well.

Which principles that you like the most?

Happy Investing! 😉