Ten Commandments for Successful Investing
1. Stay Rational
“Buy not on optimism, but on arithmetic.” — Benjamin Graham
Don’t let your emotions get in the way of your investing decisions. This is easier said than done when you are investing real money. Always strive to remain rational in the face of intense emotions. Do this by understanding the business.
2. Stick to What You Know
“Know what you own, and know why you own it.” — Peter Lynch
Focus your attention on industries that you’re already comfortable with. Imagine that you were going to have to own and operate a business.
3. Do Your Homework
“Never invest in a business you can’t understand.” — Warren Buffett
Sometimes it takes time to find the perfect business for you. It is important to fully understand the business as if you were the owner of the company. Spend 5-10 hours getting to fully know a company from the inside and out.
4. Love What You Own
“All intelligent investing is value investing — acquiring more than you are paying for. You must value the business in order to value the stock.” — Charlie Munger
Love what you own. Put your money where your values are. Most of us have the intention to make the world a better place, but seem to forget that the businesses that they invest in have a direct impact on what is going to exist in the world in 20 years.
5. Trust The CEO
“I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” — Warren Buffett
The CEO should be trustworthy and transparent. They should put others first and share your values.
6. Buy a Wonderful Business on Sale
“Margin of Safety – Always!” — Mohnish Pabrai
Ensure that you will make money on a business by buying it at half price. Always strive to buy $10 bills for $5.
7. Price Does Not Equal Value
“Price is what you pay. Value is what you get.” — Warren Buffett
Know what the business is really worth. Just because it is priced a certain amount does not mean it is worth that.
8. Buy Fear, Sell Greed
“Generally, the greater the stigma or revulsion, the better the bargain.” — Seth Klarman
You should be fearful when others are greedy and greedy when others are fearful. When the stock market drops, greedy investors get out quickly to avoid losses. If the company is wonderful, and you understand it, that’s when you take advantage.
9. Be Patient
“In many ways, the stock market is like the weather in that if you don’t like the current conditions all you have to do is wait a while.” — Lou Simpson
It is ok to wait until conditions in the stock market are just right. Invest for the long-term in companies that you know will be around in 10 years.
10. Do it on Your Own
“You probably aren’t getting the returns you deserve by having someone else manage your money and you definitely don’t know what companies your money is invested in.” — Phil Town
No one cares about your money as much as you do. Make your own decisions in your best interests and not in those of your financial advisor. Warren Buffett makes his decisions based on what he needs. Not the needs of financial advisors and stock brokers.
Warren Buffett and Charlie Munger quotes discussed in the above video:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
“The market is designed to transfer money from the active to the patient.”
“Remember that the stock market is a manic depressive.”
“It’s not supposed to be easy. Anyone who finds it easy is stupid.”
“Price is what you pay. Value is what you get.”
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
“We eat our own cooking.”
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.”
“We use debt sparingly, and when we do borrow, we attempt to structure our loans on a long-term fixed-rate basis.”
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