| Stock investment is one of the fastest ways to | | | | is "Never lose money" and his second rule is |
| become a millionaire. Warren Buffett is a good | | | | "Never forget the first rule". People think of |
| example of a billion-dollar investor. To be a | | | | investment as high risk because they have not |
| successful investor like Warren Buffet, you have | | | | learnt how to do it properly. Just like driving, don't |
| to first understand his beliefs towards the market | | | | you think it is risky to drive on the road if you |
| and his investment strategies. | | | | haven't learnt how to drive properly? If you know |
| 1. The market is irrational | | | | the right way to do it, you can reduce the risk |
| Warren Buffett believes the market is irrational. It | | | | significantly. |
| is often driven by greed and fear. Do you know | | | | 4. Invest in few great companies |
| people who buy when the market has gone up | | | | Most investors are taught to "diversify, diversify, |
| and sell when the market came down. Or are you | | | | diversify". Therefore, they bought into many |
| one of them? If you have done your research | | | | mutual funds and keep small holdings in many |
| and understand the true value of the stocks you | | | | stocks. Warren Buffett thinks diversification is for |
| have bought, you will feel secured and will no | | | | people who don't know better. By investing |
| longer be worried when the prices go up and | | | | across the market, you will go up and down with |
| down. | | | | the market. The key to outperform the market |
| 2. No one can predict the market consistently | | | | is to identify great companies and focus your |
| Take a moment to recall, have you heard stories | | | | investments in them. |
| about someone who spend money to buy | | | | 5. Make decisions base on strict criteria |
| mysterious trading systems, hoping to make | | | | Many investors make decisions based on |
| good profits but only to be disappointed? Average | | | | emotions. They are tempted when they learn of |
| investors try to predict the market's next move. | | | | hot tips or see their friends making quick profits. |
| When they cannot predict, they give money to | | | | Then they sell immediately when they see stock |
| the so-called experts who claim they can. Warren | | | | price tumble the next day. Successful investors |
| Buffett believes that successful investment has | | | | follow a set of strict criteria to determine when |
| nothing to do with the ability to predict. Master | | | | to buy and sell. Investment criteria are rules that |
| investors know that no one can predict the | | | | you follow to decide what stocks to buy, when |
| market consistently. | | | | to buy and after buying, when to sell. Here are |
| 3. Huge returns with little risk | | | | some examples: the company must have |
| While many people talk about "high risk, high | | | | increasing sales and profit for the last 5 years, |
| return", Warren Buffett believes in huge returns | | | | return of equity must be more than 15%, |
| with little risk. In fact, Warren Buffett is a very | | | | long-term debt must be less then 3 times of net |
| risk adverse investor. His first rule for investment | | | | profit, etc. |