Stock investing is one of the fastest ways to become a millionaire. Warren Buffett is a good example of a billion dollar investor. To be a successful investor like Warren Buffett, you must first understand his belief in the market and his investment strategies.
1. The market is irrational
Warren Buffett believes the market is unreasonable. It is often driven by greed and fear. Did you know that the market will buy when prices rise and sell when prices fall? Or are you one of them? If you do your research and understand the true value of the stocks you buy, you will feel safe and will not have to worry about the price going down.
2. No one can consistently predict the market
Take a moment to think, have you ever heard the story of someone who spends money to buy a mysterious trading system, hoping for a good profit but only disappointed? The average investor tries to predict the next move in the market. When they can’t predict, they pay so-called experts who claim they can. Warren Buffett believes that the ability to make predictions has nothing to do with successful investing. Master investors know that no one can consistently predict the market.
3. Huge returns with little risk
Although many people talk about “high risk, high return”, Warren Buffett believes in huge income with little risk. In fact, Warren Buffett is a very risky investor. His first rule for investing is “Never lose money” and his second rule is “Never forget the first rule”. People think of investing as a high risk because they have not learned how to do it properly. Just like driving, don’t you think driving on the road is risky if you don’t learn to drive properly? If you know the right way to do this, you can significantly reduce the risk.
4. Invest in a few big companies
Most investors are taught “diversity, diversity, diversity”. So, they buy into many mutual funds and hold small holdings in many stocks. Warren Buffett thinks diversity is for people who don’t know well. By investing across the market, you will go up and down with the market. The key to surpassing the market is to identify the great companies and focus your investment in them.
5. Decide on the basis of strict criteria
Many investors make decisions based on emotion. They are tempted when they learn hot tips or see their friends gain fast. Then they sell immediately after seeing the share price fall the next day. Successful investors follow a set of strict criteria to determine when to buy and sell. The investment criteria are the rules you follow when deciding which stocks to buy, when to buy and after buying, when to sell. Here are some examples: In the last 5 years the company must increase sales and profits, return equity must be more than 15%, long term debt must be less than 3 times net profit etc.