Avoid investing based on the stock tips or
recommendation. Do your own research
Human beings always have a natural tendency
to follow the crowd, but when it comes to share market investing, following the crowd can
more often result in ending up with losses. Why do you copy the mediocrity of the masses
when you can replicate the success of the of one of the world’s greatest investors?
The investment secrets of Warren Buffet
have got unveiled here.
1) Look at quality businesses; not just the
Warren Buffett said, "When I buy a
stock, I think of it in terms of buying a whole company, just as if I were buying a store
down the street." Most investors don't analyse the businesses they invest in. They
simply follow the symbols or brands of successful corporate houses.
If you are buying a shop, you will analyse
about the products dealt by the shop, overall sales, consistency of sales, competition for
the shop, competition strength of the shop, how the shop will manage the change in
customer trends and so on. We need to apply a similar logic before choosing a stock.
Don’t think that you are only buying a few shares of that company. Will you buy the
whole company if you had enough money?
2) Are you willing to own a stock for 10
years? If no, then don’t own it even for 10 minutes.
Only buy something that you'd be perfectly
happy to hold if the market shut down for 10 years. In the short run, the market is like a
voting machine—tallying up which firms are popular and unpopular. But in the long
run, the market is like a weighing machine—assessing the substance of a company.
Looking at the short term opportunities in the stock market will not be a long term
successful strategy. If you don't feel comfortable owning something for 10
years, then don't own it even for 10 minutes.
3) Check thousands of stocks and look for
very high bargains
Avoid investing based on the stock tips or
recommendation. Do your own research. Analyse thousands of stocks before choosing the
right stock to invest. Once you have chosen a right stock, wait till the share is
available at a very high bargain price. Buying a right stock at the right price is the key
to investment success. Investors have the luxury of waiting for the "fat pitch".
It is really difficult for an individual
investor to analyse thousands of stocks and finding out the right time to buy a stock. If
this is the case, you can outsource this portfolio management to a professional financial
planner or wealth manager. But you need to be careful in choosing a professional who is
capable and at the same time customer centric.
5) Scrutinise how well management is using
Check how efficiently the management is
using its resources like money, manpower and material. This management efficiency will in
turn reflect in return on equity and return on capital.
6) Always stay away from "the hot
The hot stocks are those stocks which have
some attention catching activity such as severe volatility in share prices, high trading
volume or when the stock is in news. Stay away from these hot stocks.
Warren Buffett once said, "Most people
get interested in stocks when everyone else is. The time to get interested is when no one
else is. You can’t buy what is popular and do well."
7) How much money you will make?
Before investing in a stock calculate
‘how much money you will make’ in this investment. Of course, you need to make a
few assumptions to do this calculation. But do calculate.
Most often investors tend to ask the share
is undervalued or overvalued. Identifying the intrinsic value of the stock is difficult
and the various models available to calculate the intrinsic value are faulty.
Warren Buffett wrote in a report
"Unless we see a very high probability of at least 10% pre-tax returns, we will sit
on the sidelines."
Get rid of the weeds and water the flowers
— not the other way around
People have this tendency of loss-aversion.
That is when the share price has fallen down by 50%, they choose to wait. They convince
themselves and others by saying "It will definitely come back".
Also people will rush to book profit when
their shares go up just by 10%.
In effect investors tend to keep the loss
making shares with themselves and they offload their profitable shares. Actually it needs
to be the other way around.
These seven secrets properly applied in the
stock market would be your roadmap to riches.
The writer is the chief financial planner at Holistic Investment Planners
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