As one of the most successful investors around, Warren Buffet seems to hold the secret to investing success. Much of his investment philosophy is not hidden, however. Here are four simple ways you can start to follow his lead:
1. Think Like an Owner
When looking to buy a company, you wouldn’t simply buy it based on its share price. You would research it by looking into its financials. The Securities and Exchange Commission (SEC) knows and encourages this, and so requires all publicly owned and traded companies to make public filings, which are then posted on the SEC’s website. These filings include:
- Foreseen areas of growth,
- Foreseen areas of risk,
- Amounts of debt,
- Amounts of revenue,
- Amounts of profit, and
- Board member and shareholder information
The filings are required both quarterly and annually, so you can see exactly how the company has fared. If you are having trouble understanding these documents, you should contact a financial advisor or investment firm likeFisher Investments Ken Fisher is a recognized leader in the financial world and a columnist for Forbes. A professional financial advisor like him can break the information down for you and advise you on the health of the company and whether or not you should invest.
2. Be a Bargain Investor
Like a bargain shopper, bargain investors look for undervalued stock that has a higher intrinsic value. The hard part of being a bargain investor is that it is often difficult to assess a company’s intrinsic value. Investopedia includes a list of questions to ask yourself that will help you decide if a company is worth investing in. These questions include:
- Has the company consistently done well?
- Does the company have high profit margins?
- Has the company stayed out of large amounts of debt?
- Is the company at least 10 years old?
3. Invest Long-Term
Never base investing decisions on the short term, even when there are extended downturns. If you have chosen a stable company by following the advice above, the company will recover. Short-term fluctuations are common, and what makes them worse is that nobody seems to know when or why they will happen. It is easy to panic when you see red on the ticker, but a smart investor like knows how to weather the storm.
4. Follow Conservative Personal Finance Principles
All these great investing tips aren’t going to be very helpful if you don’t have a healthy financial base. Here are a few things you should already have mastered before you start trying to invest like Warren Buffet:
- Spend significantly less than you make. Liz Weston recommends paring down your must-have necessities to just 50% of your income so you can put the rest in savings.
- Get out of debt. You can start by getting rid of credit card debt!
- Create an Emergency Fund. This fund will work as a buffer between unexpected expenses and your savings.
These are just four ways you can start to invest like Warren Buffet. What are your favorite investing tips?