The Warren Buffet principles for investing can be incorporated into a normal person’s investment portfolio by simply following the principles adopted by investment mastermind. A normal person can invest like Warren Buffet by adopting the following financial guidelines:
Spend less: A normal person must spend according to his needs and must not indulge in overspending on lavish items. The money that is saved could be invested in stocks in order to earn a return greater than 20% on an annual basis.
Plan or strategize: A person must plan in advance and set goals and aims that he wishes to achieve thorough the investment. An investor must always remember that the decisions must be in his best interests as opposed to the interest of others such as brokers.
Financial Analysis: An investor must perform the financial analysis of several companies before buying stock so that the viability and future profitability of the stock is ascertained beforehand. An investor must only invest in a company that he truly understands.
Do not fear Risk: A normal person can invest just like Warren Buffet if he overcomes his fear of risk or the fear of losing his investment. Losses arise due to lack of information and Warren Buffet states that stocks are a much safer investment than bonds and other investment options.
Long term investment: An investor that is keen on earning returns like Warren Buffet must think of investment that spans over a long period of time. Continuous stock market trading must be avoided as long term investments are the only ones that result in fruitful gains. Furthermore, a potential investor must start saving at an early age in order to get rich by the time he is 65.
Invest in a viable company: An investor must always invest in a quality organization that offers long term prospects and has a high chance of survival. Warren Buffet is known for investing in sound companies such as IBM and generating high returns.
Buying during crash: A normal investor can invest like Warren Buffet simply by purchasing stocks when markets show an all time low prices. This would help in generating capital returns and would also prevent the possibility of a permanent loss. Investor should know the philosophy “How to Invest like Warren Buffett”.
Financial ratios: An investor must analyze the financial ratios of the company namely the return on equity and return on capital employed in order to assess the efficiency of the management of the company in using its assets to generate sales. Investment decisions should be based on facts and figures rather than emotions.
Exercise patience: An investor must remain patient even when stock market shows a decline. This is because if Warren Buffett stock basics principles are followed you are likely to invest in quality companies and these companies stocks will surely recover once things get back to normal.
Trading strategy: A losing stock must be sold when the market is high as this is likely to curtail an investor’s loss. Conversely, an investor must buy quality stock when the market is low in order to limit the initial capital expenditure.
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