Last time, I talked about investing in stocks and we looked at what makes a good stock and what must be avoided when buying the stocks of a company. If you haven’t read that post, I would advise you read How to make more money from stock investing and make sure you understand it properly.
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Today, I shall be talking about Warren Buffet’s 4 rules for investing in stocks. It is backed up with a video I came across online. For those of you who may not be able to watch the video because of slow dial up connection, you can still read and understand this post and apply the rules when next you wish to buy stocks.
Some persons expressed their fears about investing in stock, and though I tried to explain that risks existed in all businesses, I still felt I had to support that lesson with some professional materials to give you a better understanding of what to do while trying to buy stocks.
Why talk about Warrant Buffet?
When venturing into any new business, it is always better to look up to the professionals or the successful people in that business for advice. You all know (or some of you might not know) that the most successful stock investor of all time is Warren Buffet. He is the fourth richest man on planet earth, yet he made much of his wealth from trading in stocks of great and viable companies. So if you want to be rich in the stock business, you must learn his tricks and principles.
I am going to be brief on this. I will do the basic write up and expect you to watch the video. It is easy to remember what you see. So what are his rules?
1. A stock must be stable and understandable
For a stock to be worth your investment, it has to be stable and understandable. A stock that is moving up and down or dwindling every time should not attract you or your money. If the earnings of a company is fairly stable, you would be able to know what to expect from it in subsequent years. If a company pays out certain averages as dividends to their share holders, you will know what the projected income looks like. If you do not understand the company and how it operates or how much it makes, it would be risky to invest there.
2. A stock must have long term prospects
If you are buying a stock of a company, the question that you must ask yourself is, what prospects does it have for the future? Does it have the prospects of making you money in the future? Does it have the prospects of giving you more dividends or more bonus shares? Would the price of the stock improve with time and make you more money if you want to sell them? If they don’t answer your questions, then it is risky to invest there.
3. A stock must be managed by vigilant leaders
Who are the people managing the stock you want to buy? Are they tested and proven people? Do they have a track record that could make you trust them? The quality of management the company has determines how far it stays in business. If the management is strong enough or if they have competent hands, then it is worth investing in their stocks.
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4. A stock must be undervalued
In order to make enough gain, you must go for a stock when it is being sold for a price less than what its actual market value is. If you buy a stock for a high price, it is difficult to recover your investment and make a good profit. For those who understand this very well, the best time to buy stocks is now that their prices are very low – much more lower than their actual worth.
Always aim to do a good investment and make great profit in the long run. If you follow the Warren Buffet rules as listed above, you will be able to make informed decisions as to what kind of stocks to invest your money on.
Please share your opinion with us. Do you think Warren Buffet is wrong? What other rules do you think we should apply in order to be on a safer side while making our decisions? Leave your comments in the comment box below. Remember to join our mailing list to receive our updates and announcements.