Learn to invest with Buffett

Chapter 90

Chapter 15 Section 2 Form Your Own Investment Principles
Investors should constantly measure the investment objects they already own against their own investment criteria, judge whether and when they need to take further action, and finally need to liquidate their positions or accept losses.

--Warren Buffett
In investing, Buffett has formed the following investment principles:
1. Be aware of the importance of savings

Buffett gave a simple example.

A person has a capital of 10 yuan, and the investment becomes 20 yuan a year.He bought a car with the money he earned.In the second year, he still invested 10 yuan, which turned into 20 yuan.After spending 10, there are 10 left.In the third year, his investment capital was still only 10.In the fourth year, he invests 10 yuan, becomes 20 yuan, consumes 10 yuan, and in the fifth year his investment capital is still only 10 yuan.

Another person has a capital of 10, and the investment becomes 20 a year.In the second year, he invested 20 as capital, which turned into 40.In the third year, he invested 40, which turned into 80.In the fourth year, 80 was invested, which became 160 million.

The investment ability of these two people is the same, but if one uses the profits for consumption and the other uses the profits for investment, the financial status of the two people will be very different.

2. Avoid losses
It is generally believed that investment is high risk and high return.High returns come with high risks.It is also generally believed that all eggs should not be put in the same basket in order to diversify investment risks and increase returns.But Buffett doesn't think so. He believes that if you want to invest successfully, you have to do low-risk and high-yield projects and avoid risks.

In his office, Buffett conducts investment analysis for more than ten hours a day, and only makes investments a few times a year, or even not once a year.He said, do not operate frequently, to analyze and find good projects, daily analysis work is necessary.Once there is a good opportunity, we must seize it.Don't invest frequently. Once you invest, it must be a large investment, so as to ensure low risk and high return.

Buffett believes that when investing, one must choose high-quality companies. When the market price is far lower than the actual value, it is a good opportunity to buy, otherwise he would rather not invest.We must guarantee low risk and high return.

3. Unless you don’t make an investment decision, it must be the right decision and you must make no mistakes
Buffett takes his work extremely seriously, never stops analyzing, and is meticulous in his analysis.Buffett told people that analysis is a daily homework and absolutely indispensable, but buying and selling does not need to be done every day.Buffett does not buy and sell every day, but once he does a business, he must be absolutely correct and 100% accurate before he makes a decision.Therefore, Buffett emphasized that every transaction must be fancy, and every transaction must be large.These big business decisions cannot be misunderstood.

4. Avoid debt

Buffett told investors that in the stock investment market, no matter how much capital you have, no matter how big or small your business is, you must not borrow money to invest.Otherwise, it's not an investment, but a gamble.

For example, if an investor has 100 million in his hands, if he doubles his income, he will earn 100 million.If he borrows another 500 million before entering the market, then he has 600 million in hand.If it is also doubled, it will earn 500 million more than before borrowing money.Even if the 20% interest on the borrowed money is only 100 million, after deducting the interest, you can earn 400 million more.It seems that borrowing money to invest is worthwhile no matter what.

This is actually a blindly optimistic mentality, without seeing the risks in the market.If the loss is only one's own capital and no debt is raised, there are still many opportunities to make a comeback.But if you have a lot of debts before entering the market, once you make a mistake and have a lot of debts, the chances of turning around are very small.If the business is done in the form of debt, the crisis is even greater beyond measure.

Buffett told investors to invest in a down-to-earth manner, not to mention investing with debt, otherwise, investors will put themselves in an immeasurable crisis.

Investment motto:

As an ordinary investor, you must also pay attention to the principles of investment like Buffett, and you must not forget the principles when you see a bull market.In a bull market, we must pay special attention to the following principles: 1. Don't invest your food money in the stock market. 2. Don't try to make every penny in the stock market. 3. Stock selection first depends on the fundamentals of the company. 4. Don't rely too much on the dealer.

(End of this chapter)