From Warren Buffett’s rule book: The stock market legend lives and invests according to this

shares in this article

• Warning against carelessness and lack of research
• Successful company – successful share price
• Buffett advises long-term investments

Warren Buffett is considered an investment legend and one of the richest people in the world. According to Stephanie Loiacono from the financial portal Investopedia, some statements by the stock exchange guru even take on philosophical traits. Using quotes that can be traced back to the star investor, Loiacono has established rules by which Buffett lives – and invests.

Thorough research can prevent money loss

One of Warren Buffett’s most quoted statements is a rule of thumb for investors: “The first rule of investing is don’t lose money. And the second rule of investing is don’t forget the first rule. And that’s all the rules there are. ” As early as 1985, Buffett explained this strategy in an interview with Adam Smith in his show, which ran on the US television network PBS. Loiacono pointed out that Buffett himself has failed to follow this principle on a number of occasions – after all, he reportedly lost about $23 billion during the 2008 financial crisis. But it is more a way of thinking than a concrete action. So investors should not become careless and inform themselves sufficiently. Buffett himself only invests in companies that he has thoroughly researched and fully understands. Excluded are investments where he thinks he can lose. Furthermore, he considers temperament to be the most important characteristic of an investor – and that even before intellect. This also includes neither swimming with nor against the tide, but staying focused on your own goals and pursuing them in the long term.

Company success affects share price

Another piece of stock market advice Buffett has given in the past is, “If the company does well, the stock price will follow.” Buffett is said to have drawn inspiration for this quote from Benjamin Graham’s “The Intelligent Investor”. Buffett himself attended the economist’s class at Columbia University as an undergraduate, CNBC reported. With reference to Graham’s standard work, for Buffett a shareholding is equivalent to a fractional ownership of a company. In concrete terms, this means for the investor that when making an investment, he is on the lookout for companies that could be successful in the long term. A consistent operating history, a dominant sales concession or high and sustainable profit margins could be important here, as Loiacono explained. It’s only when a company’s stock price falls short of expectations for future growth that Buffett considers the bills. The investor should only buy shares if he can give reasons for a certain price per share.

Get in low

Buffett is said to have advised “buy a wonderful company at a fair price rather than a fair company at a wonderful price.” As a value investor, Buffett prefers to buy high-quality stocks at rock-bottom prices. His long-term goal is to build ever-greater operational power for his company, Berkshire Hathaway, by building a portfolio of stocks that can post strong gains in the future. During the financial crisis in 2007 and 2008, for example, he increased his portfolio with stocks that fell as a result of the crisis, including General Electric and Goldman Sachs, from which he hoped to make profits in the long term. In order to find such companies, investors need a good instinct. For example, companies that offer a durable product and can also show solid operating results are considered. A good basis for future profits should also be recognizable. The price you pay for a share does not correspond to the value you get for it.

hold stocks for the long term

When it comes to how long to hold stocks before selling, Buffett has one piece of advice: “Our preferred holding period is forever.” If you feel bad about owning a stock for 10 years, don’t own it for 10 minutes, Buffett reportedly advised. Even in crisis situations, he held the majority of his shares. In most cases, a long holding period is intended to discourage an investor from acting too humanely: instead, fear or greed could lead you to sell a stock when it’s low or buy it when it’s high, thereby wiping out the portfolio’s long-term appreciation.

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