Warren Buffett is the world’s most successful value investor who has amassed a net wealth of over $100 billion through his investment vehicle, Berkshire Hathaway.
Buffett is the chairman and CEO of Berkshire Hathaway, an American multinational conglomerate holding company headquartered in Omaha, Nebraska.
He has overseen the company since 1965 with his right-hand man and partner Charlie Munger as vice chairman.
Affectionately known as the “Oracle of Omaha”, Buffett has been the largest shareholder of Berkshire Hathaway since 1970.
What makes him unique is that he has consistently outperformed the market because of his ability to identify quality companies and buy them at a fair price.
He shares his knowledge and investment principles openly in interviews, lectures, and the popular annual shareholders meeting.
He often quipped that the most important investment principle could be summarised by “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
Here are eight investment principles which Warren Buffet has shared over the years.
- Invest in companies you know – Start with a strong foundation of knowledge about investing and the companies you are considering investing in. Only invest in companies that you understand and are willing to hold for the long term.
- Focus on quality companies – Look for companies with a competitive advantage and a strong track record of profitability. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” Buffett said.
- Look for simple-to-understand companies with a strong balance sheet – Invest in companies that have a clear and understandable business model. Avoid companies with excessive debt or other red flags.
- Look for a margin of safety – Using a value-investing mindset, it is important to pay less than the company’s intrinsic value. “A too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favourable business developments,” Buffett said.
- Dividend-paying companies are attractive – Look for companies that have a history of consistently increasing their dividends.
- Don’t try to time the market – Invest regularly and consistently, and don’t fear market crashes and corrections.
- Be patient – Good investments take time to pay off. Buy good companies which you can hold for a long time. “Our favourite holding period is forever,” Buffett said.
- Avoid emotional decisions – Don’t let your emotions drive your investment decisions. The emotional nature of many investors creates huge opportunities for value investors looking for high-quality undervalued companies. “Be fearful when others are greedy and be greedy when others are fearful,” he said.