Case Study: Warren Buffett, part 2
Simply put, here is the distilled wisdom of making money on the stock market in long term investment:
See stocks as businesses
Many people buy stocks and see them as pieces of paper that give dividends or capital appreciation. Yes, that is actually what stocks are, but to make money in the stock market, Warren Buffett suggests a different approach. Why not see stocks as businesses, or part of businesses instead?
Every stock certificate is linked to a company, and there are many considerations in fundamental analysis that can show you the various parts of a company. Stocks are indeed linked to businesses, and the prices of the pieces of paper stem from the businesses. If you believe this paradigm, then the stocks yield money when the businesses are healthy.
I would say: is there a market for the good? Is the company doing well now? Is the company under good management, or are the people in control known for not being trustworthy? Simply put: see the stocks as linked to businesses, and apply fundamental analysis. Warren Buffett reads a lot of annual reports a year and therefore he makes a lot of money when the decisions turn out right, based on fundamental analysis.
Use market fluctuations to your own personal advantage to make money in the stock market
Warren Buffett and Ben Graham often talk about Mr Market. This is an allegory.
A man called Mr Market turns up every day and quotes prices to you. He is basically a price quoter and does nothing but quote prices to you, and you are the one who must decide whether to buy or to sell. Market fluctuations therefore help you if you can sell to Mr Market when he quotes high prices and buy from him when he quotes low prices. It is that simple. Mr Market is occasionally optimistic and occasionally pessimistic, but as long as you buy and sell at the right prices, there is no need to worry because you will make money. Why? Simply because you are able to profit from folly and profit from market fluctuations, and you did not join them.
The importance of margin of safety and not cutting things close
Another metaphor here is wise: Warren Buffett once mentioned a bridge and suggested that you do not drive heavy trucks over a bridge meant for heavy loads, but rather, you drive small trucks that are light over a bridge that can bear more load. This is the idea of margin of safety.
Another way of looking at it would be: it's better to buy a dollar for 40 cents than it is to buy a dollar for 70 cents. You don't cut things close. This enables you to make money from the difference.
What do we learn from the bridge metaphor and from the dollar analogy? We learn the value approach. Just as we do not want to fall over a precipice by driving a heavy truck over a bridge, and just as we want to make money by buying dollars cheap, we should do the same for stock investments. Do not cut things close.
Use your common sense - or Warren Buffett's common sense
Last but not least, use common sense.
This may prove harder than the more technical aspects of value investment, like margin of safety and fundamental analysis, and the other elements of Warren Buffett's system that I mentioned already. The reason is that this needs to develop via experience. Diversification may not be a good idea if you know what you are doing, but if you don't know, then diversification might save you. That kind of common sense is sometimes counterintuitive and may take some time to acquire.
In addition, Warren Buffett does not always make the right decisions - and in some cases he even lost money. For that he has a good joke, and one we can learn from:
There are two rules of investment. The first is never lose money. And the second rule is, never forget the first!
More to come on other case studies and other rich men here on my ideas site on how to make money and how to become rich. Cheers!
NOTE/ DISCLAIMER/ SMALL MESSAGE: This is an ideas on how to become rich blog and should cover every possible idea on how to make money and how to become rich, not just in the financial market or in the stock market. Yet there is a focus on the stock market, among other financial devices and financial markets. At the same time, I write a lot about Warren Buffett and will continue to do so because he is one of the best investors in the world and the ideas that he preaches and practises have been proven to beat the market.
Not everyone will agree with what Warren Buffett teaches and what I write. This is true, natural and only to be expected - after all, opinions and ideas always differ. At the very least, you learn from me one major idea on how to get rich, and in the way and manner of your choosing - you can choose someone who is very rich and then make a mentor of him, learning his skills and ideas and concepts that have enabled him to make money, be it in investment, in a job, or in banking, or in real estate and the like. That means that if Warren Buffett and value investing is not your cup of tea and these don't interest you, the other case studies here on my ideas site might help you. Cheers!
Ideas on how to get rich!
Case Study: Warren Buffett, part 2
Case Study: Warren Buffett, part 1
Case Study: Warren Buffett, part 1
A cursory glance at Ideas on How to Become Rich will reveal that I am a fan of Warren Buffett and that this author personally thinks that Warren Buffett is one of the greatest investors in the stock market on earth, and that Warren Buffett's money making techniques are the best. Well, that's because it's true, and besides, as I've already said before, this site explores ideas on how to make money and become rich, and Warren Buffett has used value investing to make intelligent investment decisions that have made him the richest man in the world, correct as at 2008, according to Forbes.
There are a few points to note in this introduction to the greatest investor:
What Warren Buffett does to make money has been documented.
What Warren Buffett does to make money can be learnt and reproduced, because he himself learnt the key ideas from a man called Benjamin Graham.
What Warren Buffett does to make money is nothing spectacular and can be summarised in a few key terms and concepts, which then need to be applied.
In summary, the key concepts that Warren Buffett employ are all basic tenets of value investing which depend on fundamental analysis: see stocks as businesses; use market fluctuations to your advantage; always have a margin of safety; use your common sense.
Value investing and fundamental analysis have been covered in great depth here on my money making site, but here is a short summary for revision and for clarity: value investing is an investment paradigm that looks at intrinsic value of a company, and concomitantly its stock. Value investing is closely related to fundamental analysis, which is analysing a stock by looking closely at its values and fundamentals, such as the price-earnings ratios, the assets that the company owns, the debts that it owes, and other fundamental aspects of the company that one should know if one puts money into it. In simple summary - value investing is about value, and fundamental analysis is analysis by looking at a company's fundamentals.
Warren Buffett is my investment hero because he is able to use his skills and techniques that Benjamin Graham espoused to make a lot of money on the stock market. The secret has been out for years and yet few have been able to make full use or take advantage of what Warren Buffett and Benjamin Graham have said and taught, strangely.
So, for absolute beginners to Ideas on How to Become Rich, who exactly is Warren Buffett?
Warren Buffett is an American investor and philanthropist. He started out in investment when he was very young, and was always very entrepreneurial. One day he studied under Benjamin Graham in university and learnt the key skills of investment, and then later did indeed work for Graham in his investment partnership company. However, Warren Buffett found that although he agreed with the intellectual concepts and ideas that Graham taught him, he did not agree with how Graham ran his company and felt that Graham missed out on a lot of winners precisely because of his narrow definition of margin of safety.
Using the concept of margin of safety and other key skills he learnt from Graham, Warren Buffett then set up his own partnership, and the rest, as is commonly said, is history. Warren Buffett went on to become one of the world's best investors and then became one of the world's richest, and then finally Warren Buffett became the world's richest man. Warren Buffett currently runs Berkshire Hathaway and is involved in investment and charity at the moment, as he had given some billions away to Bill Gates, who is also a noted philanthropist. This basically sums up Warren Buffett for people who do not know who he is.
Here are some Warren Buffett quotes here on Ideas on How to Become Rich, to see how the Sage of Omaha/ the Oracle of Omaha gives his investment wisdom in clear, lucid and vivid analogies and stories. Click here for Warren Buffett quotes and investment sayings.
In addition, click here to find out more about the investment paradigm of fundamental analysis and how it differs from technical analysis. Do remember to read up here on this site, and do please enjoy your research into these two important, key concepts here.
More detailed analysis of these to come, here on this series on Warren Buffett:
see stocks as businesses; use market fluctuations to your investment advantage; always have a margin of safety; and use your common sense when it comes to investment. All these key ideas and important concepts will be dealt with in the next post on Warren Buffett, as they are all important ideas on investment and important ideas on how to become rich. Stay tuned!
What is Forex and How to make money with Forex (summary)
What is Forex and How to make money with Forex (summary)
This is the final summary post on forex and how to make money with forex. The next series on Ideas on how to Become Rich will be on various rich people, because one of the key ideas on how to become rich will be looking at rich people, like Warren Buffett and Bill Gates and then finding out how they became rich or looking at various perspectives and methods of earning money or making value through stocks and the like. Simply put, the next series here on this money making blog will be case studies on the rich and famous, especially my favourite Warren Buffett. (Yes, I've mentioned it before, I am a bit biased.)
Here are the links to the various articles on forex:
What is Forex and How to make money with Forex
What is Forex and How to make money with Forex 2
What is Forex and How to make money with Forex 3
What is Forex and How to make money with Forex 4
What is Forex and How to make money with Forex 5
The first post details the introduction to forex for beginners. What is it, and how can it make you some money and how do you become rich by dabbling in forex?
The second post deals with words and phrases, vocabulary if you must call it that, associated with forex and trading currencies. The vocabulary is important in the acquisition of forex knowledge and a basic working knowledge of forex.
The third post details the reasons why you should choose forex as an avenue for making money. Why should you choose forex over making money using the normal stock market or the other investments detailed here in this money making blog?
The fourth post deals with fundamental and technical analysis. In fact, one of the key ideas of investment, for both forex speculation/currency trading and investment using the stock market, is the difference between fundamental analysis and technical analysis. Fundamental analysis and technical analysis are key to investment, be it stocks or forex.
The fifth post is basically about strategies for forex and strategies on how to make money with forex. All these articles are basic introductions and ideas on making money and do not represent information that you can immediately and directly use on the forex market. These articles and posts here on this money ideas site are for you to learn about forex and then get an inkling of the various possible ways that one can earn money.
This last post on forex is a summary, so that it is easier to get a gist, and also so that it is easier for beginners and learners to navigate around my site and see and learn the various ideas and concepts for forex here. Forex can be a very lucrative and money making venture for some, and hence a basic and sound grasp of forex fundamentals will prove vital. Come to my site here and learn about forex and how to profit and make money from forex!
From the next post onwards, case studies on the rich and famous, so that we can glean lessons and ideas on how to become rich.
