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Investment Rules According to Warren Buffett

Nov 09 2011

The Snowball: Warren Buffett and the Business ...

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Everyone knows Warren Buffett as the billionaire who made his fortune through simple investment rules combined with savvy expertise with balance sheets. Granted, he gave most of his fortune away and lives an extremely humble life, but that’s by choice and not necessity. Warren Buffet is the Yoda of investment and a financial philanthropist whose actions inadvertently command respect.

Rule #1: Don’t lose money. Rule #2: See rule #1. That said and done it’s not as clear-cut as it would seem. Before applying the two investment rules above, there are a set of commandments that need to be followed to ensure you’re not accessing a financial drain.

Investment rules should always pertain to a Forex trading account, because trading always needs to be done with a cool head, and a clear and concise goal in mind. Warren ‘Yoda’ Buffett controls his risk as much as he reaps his rewards.

  1. Be frugal: Live simply. It gives you more to invest. You don’t need fast returns to support an extravagant lifestyle.
  2. Resist the itch: Resist the need to constantly buy or sell stocks. Patience is a virtue for a reason. Buffett says you must wait for the “fat pitch,” which means waiting for stocks of great companies to start trading at really affordable estimates.
  3. Don’t be a sheep: Don’t follow the crowd because you think they’re right. Buffetts rules of investing indicate you should do the contrary when investing.
  4. Don’t jump the gun: Don’t invest in the stock of a company you don’t understand. If you don’t know what the company does, don’t invest in it until you do know exactly what it’s all about.
  5. Don’t look for investment affirmation: One of the Warren Buffett investment rules for his trading is to do it by purchasing stock disliked value stock. The stocks that you don’t get to see on T.V because they’re not high enough.
  6. Buy companies cheap: Granted, not many of us are looking to buy companies right now, but when you get to that stage, Buffett suggests calculating the ‘intrinsic value’ of the company first. He goes into further detail on this point in his book “The Warren Buffett Way.”
  7. Look for companies with economic moats: Don’t look at companies who can push their company price up due to brand value, or patentable products. Companies in commodities are considered prime when applying rules of investing. These businesses have to take whatever price they can get when selling their business.
  8. Buy big:  When Buffett finds a company he likes he throws everything into it. Once again he goes against the grain. He makes a point of first understanding the intrinsic value of the business and the calculations of his risk investment before ploughing ahead with investments that others may not necessarily touch.
  9. Hold on: Warren Buffett believes that if you panic at your investment initially dropping 50%, then you shouldn’t be in the trading business. This doesn’t mean you should invest and forget, always monitor your investments closely.
  10. Believe in the economy you’re investing in: No point investing in something you’re not sure about. See the future potential and hold onto your investments and believe they’ll grow.

If you’re a newcomer to investments, consider the investment rules, as well as a Metatrader 4 Forex broker as a way to break into the market, but always remember to remain level-headed, avoid panic and look to the future.

Sally Roberts is a keen writer with a penchant for investment advice.

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