Warren Buffett is undeniably the most successful investor in history. His success is attributed by some to his sharp acumen and understanding of business while others call it luck. Numerous books have been written in an attempt to analyse the factors behind his extraordinary success. However, replicating similar results is no cakewalk.
Success at Mr Buffett's rate is not a result of following a set formula. It was a continuous process which was followed. Discipline, perseverance and effective execution play a pivotal role in his success story.
Here's a list of key factors which led to Warren Buffett's coveted success:
Chalk up a plan
While making an investment, it is important to set a goal. Invest in value and be patient. Quoting Buffett's famous words, "The stock market is a device for transferring money from the impatient to the patient." So once your homework is done and a choice is made, stick to your plan.
Invest in value
"Price is what you pay, value is what you get," Mr Buffett has said. Whether it is going in for an investment or making any other purchase, these words ring true. Looking for value is the underlying principal to be followed.
'Plough back' to reap benefits
Retain the earnings and invest them back into the business. The idea is to make the business grow and sustain. If earnings are taken home as dividends from a flourishing business, it does not help the very business which helps your earn and grow. Dividends are popular but they shouldn't be the only thing one must have an eye on. It is important to track the utilisation of funds back into the business to continue growing.
Strategize and execute
When it comes to investments, figure out the cash in hand and the fixed income sources you may invest in. The returns must be enough to sustain your current lifestyle. After this is sorted, money can be invested in other options which have a possibility of high returns against high risk. The strategy adopted must ensure that investment options are balanced. As Mr Buffett has said, do not put all your eggs in the same basket.
'Time is money' and has to be managed accordingly
Warren Buffett has said: "The rich invest in time and the poor invest in money." Time indeed is one commodity equally distributed to everybody. Tasks which were not related to his investment process were either delegated or eliminated. Time and energy spent on trivial tasks can be channelised on the ones topping the priority list.
Develop managerial skills
Learn, read, think
Warren Buffett has said investing in self is the best thing one can do. Nobody can take away talent from a person. Irrespective of economic conditions, talent will always fetch proportionate returns. The value does not deteriorate. Hence, it is important to invest in developing one's skills. Staying updated helps one make intelligent decisions. In Mr Buffett's wise words: "You can't reach success in investment if you do not think independently."
Create more than one source of income. Do not depend on your job alone. Make investments to create a second source of income. Think twice before buying anything. Retail therapy does not really help in the long run. If one continues to buy things that are not needed, there will be a stretch situation someday for making necessary purchases.
Diversify the portfolio. It is important to balance investments on basis of fixed income, returns and risks. Also, tread cautiously while taking risks. In Mr Buffett's words: "Never test the depth of river with both feet." This means you should only invest in the businesses you understand completely.
Be your own adviser
Many people make investment decisions based on other people's opinions. This kind of an investment is the most risky investment irrespective of the option chosen here. The investment option chosen by a friend may be best suited for his/her lifestyle and future plans. But that does not necessarily make that option a good fit for you. So think for yourself, seek clarity on your goals and then make a wise investment choice. Like Mr Buffett has said, "A public-opinion poll is no substitute for thought."
These rules inspired by Mr Buffett should help you in making your money-related choices. There are two golden rules quotes by Mr Buffett: "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."
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