Warren Buffett | How To Invest For Beginners: 3 Simple Rules - Deepstash
Warren Buffett | How To Invest For Beginners: 3 Simple Rules

Warren Buffett | How To Invest For Beginners: 3 Simple Rules

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Principles for investing

Principles for investing

The intelligent investor by Ben Graham helped to set Warren Buffett's philosophical framework for investing in three ways:

  1. Stocks are businesses
  2. How the investor should react to the stock market
  3. The margin of safety

You can build all kinds of structures on this foundation

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A stock is part of a business

You will be buying a share of a business – not merely a piece of paper that goes up and down in value.

You have to think about what kind of a business you are getting into. What are its economic characteristics for its competitors? What's its management like?

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How the investor should react to stock market fluctuations

How the investor should react to stock market fluctuations

Most people react the wrong way to stock prices. They feel good when their stocks go up and bad when they go down.

Your partner in investing is Mr Market. He's obliging. He comes around every day and tells you what he'll pay you for your interest in the business or what he'll sell you. Sometimes Mr Market will let his fears or enthusiasm run away with him. Sometimes his ideas will look plausible and justified by business developments. Use this to your advantage.

Don't first look at the value of the stock because that will influence your opinion of it. Instead, look at past performance.

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The margin of safety

Buffett says that if you were driving a lorry weighing 9,800lbs, you would not feel comfortable driving across a bridge built to carry 10,000lb. There is not enough margin of safety.

Always leave a margin of safety. Don't try to cut things so close. You wait until something kind of shouts at you in the stock market.

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How to focus on investments

How to focus on investments

  • Look for three businesses that you won't trade after you buy them. You will want to own them for the rest of your life.
  • Look for businesses with an enduring competitive advantage. That will mean a business with some kind of moat around it, for example, patent protection.
  • The business should be run by honest enabled people.
  • You want a sensible price. 

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