Avoid investing based on the stock tips or recommendation. Do your own research..
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 stocks
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 the resources
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 stocks”
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.
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