1.
Choose Simplicity over Complexity
When investing, keep it simple. Do what’s easy and obvious.
If you don’t understand a business, don’t buy it.
2.
Make Your Own Investment Decisions
Don’t listen to the brokers, the analysts, or the pundits. Figure it
out for yourself.
Become a value investor. It’s proven to be a very rewarding technique
over the long term.
3.
Maintain Proper Temperament
Let other people overreact to the market.
To succeed in the market, you need only ordinary intelligence. But in
addition, you need the kind of temperament to help you ride out the
storms and stick to your long-term plans. If you can stay cool while
those around you are panicking, you can surely prevail.
4.
Be Patient
Think 10 years, rather than 10 minutes
Don’t dwell on the price of stocks. Instead, study the underlying business,
its earnings capacity and its future.
If the question is, “How long will you wait?” – “If we’re in the right
place, we’ll wait indefinitely” says Buffet.
5.
Buy Business, Not Stocks
Once you get into the right business, you can let everyone else worry
about the stock market.
Business performance is the key to picking stocks. Study the long-term
track record of any company that is on
your buy list. Buffet looks for following five main things before investing
in a company.
(i) Business he can understand
(ii) Companies with favorable long-term prospects
(iii) Business operated by honest and competent people
(iv) Businesses priced very attractively
(v) Business with free cash flow
Don’t think about “stock in the short term.” Think about “business in
the long term”.
6. Look for a
Company that is a Franchise
Some businesses are “franchises”. Franchise generates free cash flows.
7.
Buy Low-Tech, Not High-Tech
Successful investing is rarely a gee-whiz activity. It’s less often
about rockets and lasers and more often about bricks, carpets, paint,
shaving blades and insulation.
Do not be tempted by get-rich-quick deals involving relatively complex
companies (e.g., high-tech companies).
They are the most unpredictable in the long run. Look for the absence
of change. Look for the business whose only change in the future will
be doing more business, e.g Gillette Blades.
8. Concentrate
Your Stock Investments
A the “Noah’s Ark” style of investing – that is, a little of this, a
little of that. Better to have a smaller number of investments with
more of your money in each.
Portfolio concentration – the opposite of diversification – also has
the power to focus the mind.
If you’re putting your eggs in only a few baskets, you’re far less likely
to make investments on impulse or emotion.
