Warren Buffett’s 5 Investing Gems

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  • 27 Jan 2023
Warren Buffett’s 5 Investing Gems

Warren Buffett, popularly known as the ‘Oracle of Omaha’, is one of the most successful investors ever. Investors around the world follow the investment philosophy shared by him regularly.

Here are 5 investing philosophies shares by him, which every investor in the world should reflect upon.

1. Buy wonderful businesses, not cigar butts

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” The cigar butt investing strategy refers to cigar butts as stocks of beaten-down companies trading below their intrinsic value. However, Buffet believes in investing in ‘wonderful businesses’ at a fair price, as it can generate more and more by compounding over the years. This way, it is better than investing in cigar butts. Investing in a business with potential can produce consistent returns to maximise your wealth. Hence, it is a.good idea to buy good company stock at a fair price rather than buy average company stock at a lower price.

2. Pay attention to facts, not emotions

“Be fearful when others are greedy and greedy when others are fearful.” When most investors are bullish, the asset valuation of the companies will go high. Thus, to be a rational investor, you need to focus on the facts instead of being influenced by emotions and blindly following the trends like a herd. Don’t let the behavioural bias come in your way of a disciplined investment approach. Think through carefully, research your investments and then be greedy, based on your facts and not emotions.

3. Buy only stocks that you understand

“Never invest in a business you cannot understand.” Irrespective of the volume of investment you would want to make, it is not wise to invest in a stock just because the price is predicted to go up. No one can predict the market. As per Buffett, you should only be investing in stocks of businesses that you completely understand and can benefit from in the long run. Keeping the focus on quality and understanding the business is crucial for successful investing.

4. Grab every opportunity that you get

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” As per Warren Buffett, when you get the chance to do something big, you should never miss out on that opportunity. Be it small scale or large scale, doing it right and grabbing the big opportunity is extremely important for investment decisions. So, if the market corrects more than 10-20%, it is time to invest heavily to buy low, as great opportunities do not come your way every day. Hence, seize the opportunity whenever it comes your way.

5. Practice value investing

“Price is what you pay; value is what you get.” Warren Buffett follows the value investing approach introduced by his guru Benjamin Graham. Investing is not just about buying stocks at a lower price. He mentions the explicit difference between price and value. Investors must buy a stock that can provide a long-term return. Value stocks are the stocks of companies with the potential for healthy growth and strong management and can provide great returns on equity over the long run compared to other companies in the industry. Ultimately, the value you get is more important than the price you pay.

It is important to remember that an empire cannot be built in a day. With the right strategy and the investing tips from the most successful investor, you can start building a great investment portfolio that can help you achieve all your dreams.

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