When it comes to building wealth through investments, I can think of few people who are better than Warren Buffet. After all, I don’t think you become the third wealthiest person in the world by accident. You need to know what you’re doing – and Warren knows how to invest.
Have you ever wondered where he learned his craft? If so, one of the people who had the greatest influence on his life was Benjamin Graham. Luckily for us, Graham wrote several books on investing, including The Intelligent Investor. Warren thinks so highly of this book that he says its “By far the best book on investing ever written.”
Since Warren is a man who I respect when it comes to knowing how to invest, I bought the book in order to learn how to be a better investor. In my journey here are the things I’ve learned.
- You don’t need a high IQ to be an intelligent investor. This should give all of us hope! What’s more important is to have the discipline to keep your emotions under control. Following certain principles and attitudes is more important than the ability to analyze stocks.
- Know the difference between an investor and a speculator. Speculators trade in and out of the market, trying to determine the right time to buy and sell. Be an investor. In your desire to create wealth, look to gather little by little.
- Determine whether you’re a defensive or enterprising investor. You’re defensive if you want to avoid serious losses. You want freedom from major effort and the need to make frequent decisions. On the other hand, you’re enterprising if you’re willing to put in extra time and care into the selection of investments. Enterprising investors need to treat their investments like a side-business. In order to profit from stock-market folly, they need to bring extra effort and intellect.
- Dollar-cost average. This investing principle teaches us to purchase strong stocks on a regular basis, through thick and thin. Graham mentions that in the 20 years from 1929 to 1948, if you only invested $15 dollars every month, you would’ve ended up with about $8,500! The nice thing about this is that you’d only be contributing $3,600 of your own money. You’d be earning a bit over 8% returns, and would have more than doubled your money.
- Understand how the stock and bond markets performed in the past. You’re likely to meet similar conditions in the future. Bull and bear markets are a regular occurrence in the stock market. In 1987, US stocks had their worst 1-day fall in history. And after a great bull market in the late 1990′s, a tough bear market started in early 2000.
- Be wary of technical approach, the dow theory, and other gimmicks.
- Don’t be cocky. People once thought stocks could be bought at any time, and any price. They believed that profit was a sure thing, and that any losses would be recovered by a rise in the market to higher levels.
- Don’t put much faith in over-optimistic forecasts and assurances from “experts.”
- A lack of enthusiasm. In most areas of life, enthusiasm is helpful in trying to achieve a goal. But when investing to build wealth, over enthusiasm can lead to your downfall.
Have you read The Intelligent Investor? Do you try to follow some of the principles mentioned above?