Warren Buffett's 5 Rules For Investing

Warren Buffett's 5 Rules For Investing

Buffett bullet five fundamentals of investing, which we paraphrase:

1. "You don't need to be an expert in order to achieve satisfactory investment returns."   But Buffett also warns that the investor should recognize her limitations and "keep things simple.
2. "Focus on the future productivity of the asset you are considering." Buffett notes that no one can perfectly forecast the future profitability of an investment. "[O]mniscience isn't necessary; you only need to understand the actions you undertake."
3. "If you instead focus on the prospective price change of a contemplated purchase, you are speculating." Buffett has nothing against price speculation. But he emphasizes that it's important to be able to know the difference between investing for the productivity of the asset versus investing on hopes that the price of the asset changes.
4. "With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays." In other words, focus on the long-run.
5. "Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important." So mute CNBC, Bloomberg TV, and Fox Business. Unless Warren Buffett comes on.

• "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
• You don't have to be a genius to invest well.
• But, master the basics.

• "To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices."
• Don't buy a stock just because everyone hates it.
• a contrarian approach is just as foolish as a follow-the-crowd strategy.
• Bad things aren't obvious when times are good

• Always be liquid

  
  
• The best time to buy a company is when it's in trouble.
  
  

  Stocks have always come out of crises.\

• Think long-term

• Forever is a good holding period

• Buy businesses that can be run by idiots.

• Be greedy when others are fearful

• You don't have to move at every opportunity

• Ignore politics and macroeconomics when picking stocks

• Fear is the foe of the faddist, but the friend of the fundamentalist.
• The more you trade, the more you underperform
  

  Price and value are not the same

• 'Price is what you pay; value is what you get.'