Warren Buffett’s investing ethics have merited him the nickname of the “World’s greatest investor.” It is a moniker that Buffett himself giggles at. However, it’s not the truth!
Though you probably won’t have an ownership curiosity in the companies in which you invest, you can follow Buffett’s methodology to generate more profits and cut losses. The steps are simple to understand, though they may not be easy to implement.
- Make a List of Criteria to Buy a Stock. For example, you could look for stocks within a certain industry and with a specific price to earnings ratio or 6 month moving average. Just remember that stock price should not be a sole criterion. Often, a good company will dip in price due to the market or sector – which could present a good buying opportunity as long as the criteria you establish are being met.
- Invest in Industries and Companies Known to You. Understanding something about the industries or companies you invest in will make it easier to stay current on industry trends and company news.
An investing strategy based on puff or following other’s stock tips is a recipe for long-term failure.
- Stay in Cash if Necessary. If no companies on your list fit your investment criteria, stay in cash. Cash is a position.
- Follow the Companies. Once you invest, follow the companies on a monthly basis. Do not look at them on a daily basis.
- Sell at the Right Time. When a company no longer matches your reasons for buying, unload the stock. If you determined it needs to be above its two-year average stock price, and it falls beneath it, then you sell. This is what most Buffett followers miss. He has rules and he diligently follows them.
When a company no longer fits his (Buffett’s) criteria, he sells. Resist the urge to make excuses to stay in the investment. Sell it. Period.