Any investor should be aware of basic investing principles, and who better to learn from than the greatest of all time Warren Buffett. This list may seem boring and redundant for advanced investors, but I always find it helpful to revisit the 'Buffett basics' almost every week just to reinforce my approach.
I realize I have not updated the site in a long time. If you would like to follow my Rise on a more consistent basis, please follow me on StockTwits where I post regularly what stocks I am stalking, buying and selling. http://stocktwits.com/tsxsmallcaps
A quick ROAM update. I am currently more focused than ever, saving as much money as I can. I am still hopelessly underemployed working as a personal trainer; luckily I love the job and it gives me time to make more money doing internet marketing. (one day I will share with you how I am making money from Google and the whole internet marketing thing.) My goal right now is to save at least $1000 a month. My plan is to increase that as I increase my income from internet marketing.
My portfolio has more than tripled since my last ROAM update from mostly capital appreciation. I was barely saving anything in 2013 because I quit my job that I didn't like. I currently have positions in Xpel Technologies (DAP.u-V), Espial Group (ESP-T), BioSyent (RX-V), International Barrier Technology (IBH-V), Questor Technology (QST-V) and People Corp (PEO-V). Please follow me on StockTwits for more regular updates or email me any time if you have any questions. I love talking stocks and catching up with my readers so don't hold back if you want to chat.
Top 5 Warren Buffett Investment Tips
1. Define your circle of competence. Almost no one is capable of understanding every business in the stock market. What is most important in investing is sticking only with what you know and staying away from businesses you do not understand. You don't have to be an expert at everything to succeed in stocks. Tom Watson who started IBM once said, "I'm no genius. But I'm smart in spots and I stay around those spots." A quick look at some of the businesses Warren Buffett owns illustrates this point clearly; they are all businesses that are simple and easy to understand. Coca-Cola, American Express, Insurance, Dairy Queen, BNSF Railway, Fruit of the Loom, Wells Fargo etc.
2. Invest in businesses that have a durable competitive advantage. Imagine the business as a valuable castle with a moat. The wider the moat is, the harder it is for competitors to get at the castle. A business with a competitive advantage and a wide moat minimizes investment risk. Signatures of a competitive advantage include long term uninterrupted earnings growth, pricing power, brand power, recurring revenue streams, wonderful management and stable revenues even in a recession. Successful businesses/stocks have management that are always trying to widen the moat and protect the castle.
3. Buy a wonderful business at a fair price, rather than a fair business at a wonderful price. According to Mr. Buffett, the best buys are sometimes when the numbers tell you not to buy because the business is so compelling it's worth the premium. Rarely will you find a wonderful business at a wonderful price, so most of the time you have to pay up to buy into a wonderful business. If a wonderful business is compelling to you, do not be scared away from an above average valuation. Over the long term, a business with a durable competitive advantage is worth the extra price to pay. As Buffett says, "Time is the friend of a wonderful business. Time is the enemy of a lousy business" As time goes on, the wonderful business makes more money and compounds it internally to grow and make even more money.
4. A stock is a piece of ownership in a business, it's that simple. If the business does well, the stock will do well. This is the timeless advice Ben Graham gave to a young Warren Buffett. Thinking about stocks in this simple way is most effective. When you buy a stock, ask yourself, would I be happy if I owned this entire business in the real world? Or, if the stock market closed tomorrow for 5 years, would I still be happy owning this business? Thinking like an owner allows you to disregard daily market fluctuations that can scare you out of a perfectly fine stock. Being successful in stocks is less about intricate fundamental and technical analysis and more about just not being scared out of your positions when the market tests your patience and temperament.
5. Detach yourself temperamentally from the crowd. You do not need to be extremely smart to succeed in stocks. What it does take is a steady, level headed temperament amidst all the day to day activity in capital markets. Everyone has an opinion on how to invest and what to buy and sell. What's most important is to form your own conclusions within your circle of competence and maintain your conviction, even when there may be other investors saying otherwise. Listening to everyone's opinion leads to bad investment decisions and too much activity. When investing in stocks, almost always you should be doing nothing; that is very counter intuitive in a hyper active free market system. As Mr. Buffett says, "Wall Street makes money on activity. You make your money off inactivity."
When you maintain the right temperament and an opportunity presents itself, you will be more prepared to seize the opportunity. Having the right temperament can pay off during corrections, recessions and any other time when fear is high. Mr. Buffett's classic line sums it up well - "Be greedy when others are fearful, and fearful when others are greedy." To accomplish this you have to detach yourself temperamentally from the crowd.