Stock Market Investment Advice

Warren Buffet was listed in Time Magazine’s 100 Most Influential People in the World in 2007, and is considered one of the greatest investors of all time. His investing philosophy and personal penny-pinching habits have contributed to his enormous wealth. “The basic ideas of investing are to look at stocks as business, use the market’s fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.” Warren Buffet [4]

Warren Buffet has lived a life of enormous financial wealth and security, and yet is known not only as one of the richest men in the world, but also one of the most frugal. He has promised to give away almost all of his wealth – 99% of it to be exact. Warren began investing at the ripe age of 11 when he bought a few shares of Cities Service Preferred. [5] From there, he has gone on to amass great financial security and the respect of millions who follow his sage wisdom.

Although Warren Buffett has never written a how-to book on investing, his official biography, The Snowball offers much insight into his investing philosophy, as do his annual letters to the shareholders of his company Berkshire Hathaway. For example, his basic rules of investing state – ‘Rule Number 1: Never lose money. Rule Number 2: Never forget Rule Number 1.’

While this fairly simplistic view of investing may seem like a joke, it is the very cornerstone of his approach. He researches a company completely before even considering a purchase of stock, and if he does not understand the business, he does not invest. This explains why he mainly invests in food, insurance, and retail stock instead of the rapidly expanding technology market. While there may be a lot of money to be made, he believes that buying into a company should be viewed as though you are actually buying the business, and therefore a firm grasp of the company’s operating model is essential.

Another piece of Buffett’s strategy in regard to investment is to never rush into an investment out of boredom and rather than amass a large portfolio full of various investments, work on a limited number of quality investments that you plan to hold onto for the long-term. Buying stock for less than what they are worth and holding them has been a key strategy in Buffet’s investment policies and has proven to be very good advice.

Overall, it is important to understand the nature of the stock market with its fairly common rises and falls. Long-term investment is the best approach to the stock market game and making sure that you are in complete understanding of the business you are considering are the two top adages of this sport. Also, make sure the company you are evaluating is not in too much debt. Chronically indebted businesses can fall prey to credit squeezes or rising interest rates, which could adversely affect your investment. Look for companies with strong, proven management and a successful record of accomplishment.

4. Hagstrom, (2005), pg. 14, Warren Buffett is now the richest man in the world with $65 billion.