Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is considered by some to be one of the most successful investors in the world, and as of March 2017 is the second Wealthiest person in the united states with a total net of $78.7 billion.
Warren Buffett’s investing principles have earned him the moniker of the “world’s greatest investor.” It is a nickname that Buffett himself chuckles at, but when you are worth $36 billion, it is hard to dispute. However, it’s not the truth.
Warren Buffett did not become a billionaire as an investor, and he does not “invest” in the manner usually depicted in popular media. That may be a bold statement to make, but once you understand his actual techniques of accumulating wealth, then you will be able to begin running your own investments in a similar way.
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Does Buffett “Buy and Hold?”
Buffett is used as an example by the media and financial advisors of why you should buy and hold. But the portrayal isn’t really accurate. When you buy and hold a stock, you buy it and hold it no matter what. It does not matter if there is good news or bad news, a Democrat or Republican president, a recession or an economic boom. You hold the stock through good times and bad.
Buffett, on the other hand, buys for specific reasons, and when those reasons are no longer present, he sells. Known as a value investor – one who buys stocks that have a low price-to-earnings ratio – Buffett looks for good prices, sound management, and a competitive advantage
Buying a stock and holding it forever is not what the Sage of Omaha does. Of the first 20 companies in which Buffett invested, the only one he still holds is Berkshire Hathaway, and that is probably only for its name. Each of the other 19 he no longer owns. Yet, we have
writers, financial advisors, business news heads, and self-proclaimed investment educators who tell you to do just that. But if the world’s richest “investor” does not do that, why should you?
How to Invest Like Warren Buffett:
Though you probably won’t have an ownership interest in the companies in which you invest, you can follow Buffett’s approach to generate more profits and reduce losses. The steps are simple to understand, though they may not be easy to implement:
DETERMINE HOW MUCH YOU WANT TO PUT IN THE STOCK MARKET:
Unless you come from money, you will probably be starting from scratch and that is ok. Many of us have to start small – myself, included. Begin by determining how much you want to invest. If you are going, the route of investing in mutual funds many will have some initial minimums you need in order to buy in. Numerous ones available have initial investments of as low as $250 or none at all, such as through E*TRADE. If you had rather invest in individual stocks, you need to choose an online broker. Many of these will also have minimums to get started, though some of them do not. If you do not have $1,000 to invest right now, set a goal for yourself to save up the money as you can start investing with $500 or less at a number of online brokers. When you reach your goal, your investment account will mean even more to you because you had to work harder for it.
Make a List of Criteria to Buy a Stock. For example, you could look for stocks within a certain industry and with a specific price to earnings ratio or 6 month moving average. Just remember that stock price should not be a sole criteria. Often, a good company will dip in price due to the market or sector – which could present a good buying opportunity as long as the criteria you establish are being met.
- Invest in Industries and Companies Familiar to You. Understanding something about the industries or companies you invest in will make it easier to stay current on industry trends and company news. An investing strategy based on hype or following other people’s stock tips is a recipe for long-term failure. If you are interested in a company you do not know, but hear a lot about, research it first.
- Stay in Cash if Necessary. If no companies on your list fit your investment criteria, stay in cash.Cash is a position.
- Do your research and follow the Companies. Rather than buying on a tips , Do the research, Buffet reportedly Read 5 newspaper a day and Once you invest, follow the companies on a monthly basis. Do not look at them on a daily basis.
Sell at the Right Time: When a company no longer matches your reasons for buying, sell the stock. If you determined it needs to be above its two-year average stock price, and it falls beneath it, then you sell. This is what most Buffett followers miss. He has rules and he diligently follows them. When a company no longer fits his criteria, he sells. Resist the urge to make excuses to stay in the investment. Sell it.
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