In this video interview with Warren Buffett, he outlines 9 easy to follow stock buying tips.
Click Here to watch the video but here is a quick summary on each tip.
1) Rule #1, don’t lose money. Rule #2, don’t forget Rule #1.
A lot of the following points circle back to these two rules. What Buffett is saying is you should do your homework on businesses so you know you won’t lose money. That may sound ridiculous because beginner as well as experienced investors say it’s impossible to not lose money. The simple truth is, if you don’t know how to look at the business then yes you can lose money in the stock market. But if you truly know how to look at businesses, you can pick winning stocks over the long-term.
2) If you buy stocks at a discount, you reduce the risk of losing money.
This references the importance of looking for the Sticker Price as opposed to the Share Price. The Sticker Price is the intrinsic value of a stock or otherwise known as the real value of a stock. If you invest in businesses with a sticker price much higher than the share price, you have a high probability of making consistent returns in the stock market. Fortunately, Tykr finds the Sticker Price for you.
The Sticker Price is directly related to the MOS (Margin of Safety) within Tykr. The MOS is the Share Price discount off the Sticker Price. Buffett has mentioned in other interviews and articles that a wise investor should find stocks with a 50% MOS or more. An example would be a stock with a Share Price of $100 and a Sticker Price of $200. In this circumstance, the Share Price is a 50% discount off the Sticker Price.
3) The most important quality of a good investor is not intelligence, it’s temperament.
As Buffett states, “You need a stable personality. You shouldn’t be with the crowd or against the crowd. You’re not right or wrong because a thousand people agree with you and you’re not right or wrong if a thousand people disagree with you.”
The market will always go up and down. It’s important to accept this early on and never forget it. If you are able to control your emotions and maintain an even temperament, investing in the stock market is going to be very easy for you. Simply put, if the stock market is going up and down, and you bought a great business, you shouldn’t worry.
4) Most professional investors on Wall Street are looking at the stock, not the business.
As Buffett states, “Investors on Wall Street use arcane methods of approaching investing.” This is not true for all investors on Wall Street but this can be true for most investors. In other words, they are using over engineered math and analytical processes when in reality, it’s really about finding businesses that you understand. If you understand a business, that means you most likely understand the industry and where the industry is going. The objective is to invest in businesses that will be around the next 10 years.
5) If they closed the stock market for five years, you shouldn’t care.
You’re not buying stocks to make a small amount of money today, you’re buying stocks to make a large amount of money over the long-term. If the stock market were to shut down for a few months or years, but the businesses you invest in are still growing, then you’re in great shape. Remember, we’re not investing in stocks, we’re investing in businesses. Good businesses will continue to sell products and services and if you own shares in a good business, you have a high probability of making good returns over time.
6) You don’t need to be on Wall Street to make money in the stock market.
As Buffett states, “Believe it or not, we get mail here and we get all the facts needed to make decisions. Unlike Wall Street, we don’t have 50 people whispering in our ear.”
Buffett doesn’t live in New York, he lives in Omaha, Nebraska. For those of you who do not live in the US and are not familiar with the location of Omaha, it’s located in the midwest, US. Nebraska is known for agricultural production. Think farmland and small-town American football. That sums up Omaha, Nebraska.
What Buffett is saying is it doesn’t matter where you live. As long as you have access to the internet, you can make money in the stock market.
7) You don’t have to be an expert at everything.
Investing isn’t about knowing everything about finance, the stock market, complex options trading, and advanced calculus. If you want to be good at investing, you really only need to know one industry or sector well. For example, are you interested in technology, health care, finance, manufacturing, energy, utilities, and other sectors? A great starting point is to look at the companies you’ve worked for or the hobbies you’re interested in. If you know an industry or sector well, you will have a better understanding on what business will be around in the coming years.
8) You should never be forced to buy or sell.
Fortunately, you’re in control! You should never be persuaded or bullied into buying or selling a stock. You get to control what you buy and sell. Buffett talks about waiting for the businesses you know to go on sale and when they do, that’s when you buy! Patience is key.
9) People prefer complexity over simplicity.
This quote from Buffett rings true for a lot of things in life, especially investing. “There seems to be some perverse human characteristic that likes to make easy things difficult.” Investing is not hard. Investing in businesses that continuously solve problems and generate revenue is an easy way to make money. Unfortunately, most people forget they are investing in businesses and they try to analyze the stock, with the assumption they know what they are doing.
In summary, Tykr was built on the fundamental principles taught by Warren Buffett. His teachings along with the teachings of Benjamin Graham, Charlie Munger, and Phil Town have been a major inspiration on the creation of Tykr.
Remember, investing isn’t difficult. Most people just find ways to make it difficult.
If you’re interested, we welcome you to try Tykr for free.