American investor Warren Buffett is known around the world for his ability to predict the growth of stocks. They try to copy the composition of his portfolio, and both novice investors and millionaires listen to his opinion. Let’s find out – how did Warren Buffett get rich?
Who is Warren Buffett
Warren Buffett started investing at the age of 11, and by 2021, his net worth was $100 billion. “The Oracle of Omaha” – so he is called for his ability to pick stocks well. In 1988, he analyzed the performance of Coca-Cola’s business and bought 7% of the company’s shares for only $5 each. And in the 1970s, he invested $10 million in the Washington Post and 20 years later turned it into $400 million and $7 million in dividends a year.
Warren Buffett’s portfolio consists of companies with a large competitive advantage: Apple, Amazon, American Express, Coca-Cola, Bank of America. The portfolio is managed by the holding company Berkshire Hathaway.
Warren Buffett’s Rules for Investing
The investor willingly shares ideas with the world. Here are a few of the principles that Warren Buffett relies on when choosing securities.
Invest for the long term. Investing requires patience and time. Don’t buy stocks because the company has a new product or expects a good quarter.
Do not follow market fluctuations. According to Buffett, quotes do not affect the value of the stock in the future. Buffett ignores short-term market movements and invests for the long term.
Invest in those assets that the investor understands. This helps to make correct forecasts regarding the development of the company.
Buy shares at a reduced price. Any stable companies suffer a crisis, and their shares fall after the entire market. In the long term, the stock will rise, so this is a good time to buy.
Assess the future of the company, not the past. Do not forget about the prospects of the company, its goals, and activities. Because future profitability depends on these indicators.
Sell shares early. If the securities do not meet expectations and strategy, it is best to sell them to make up for losses. It is pointless to hold unprofitable stocks – it is important to admit mistakes.
Invest only your own money. Don’t borrow to buy shares. With any transaction, there is a risk of losing money, the exchange does not guarantee a profit, and borrowed funds often need to be returned as soon as possible.
Pay attention to dividends. Companies that distribute dividend income to shareholders seek to maximize shareholder value. In the future, the investor can receive passive income and reinvest it in other stocks.
Do not follow market sentiment. You don’t have to follow the crowd. The main rule of investing is to pursue your own strategy and make informed decisions.
Rely not on the share price but on the company’s value. If the business develops and grows, then stocks follow. And vice versa: if the business has problems, then the stock will fall.
Warren Buffett is an inspiration to many investors. He showed that following a strategy, patience, and the ability to analyze companies helps to beat the stock market and make a profit.