1. Believe in Value Investing
Warren Buffett believes "Price Is What You Pay, Value Is What You Get".
"Never in my life have I made an investment because the stock is popular. In fact, I like to make the investment when the stock is not popular." - Rakesh JhunjhunwalaWhat is Value Investing?Value investing focuses on buying undervalued stocks of companies with strong fundamentals for a long period of time.You should make this investment in quality companies that you think are undervalued (or available at a discount price) today and has strong growth potential in the future. Hence, it's important to understand the intrinsic value of the company.You can analyse this by forecasting the present value of all future cash flows. Also, by paying attention to ratios such as,
- Price-to-Book Value (P/B)
- Price-to-Earnings (P/E)
- Dividend Yield
2. Do your Research
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." - Warren BuffetWarren Buffett gives two key pieces of advice for evaluating a company.
- First, look at the quality of the business
- Second, look at the price it is available for
3. Invest in the Business you UnderstandThis mantra has come from many successful investors like Peter Lynch, Warren Buffet and Rakesh Jhunjhunwala.
"Focus your energies on what you can and you should know well enough. The business of the company you are investing in " - Rakesh Jhunjhunwala
"Invest in what you know". - Peter Lynch
“Never invest in a business you cannot understand.” – Warren BuffettThis investment mantra applies to all ‘ever-greedy-speculators’ and ‘investors’. Invest in things that are easy to understand and track so that you can make better investment decisions.You need to simply put things in a proper perspective and focus on creating wealth in the long term.
4. Invest with Discipline
"The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them" - Peter Lynch
"The most important quality for an investor is temperament, not intellect."- Warren BuffetIf you want to follow the footprints of successful investors, having a disciplined approach is very important. Investors who are successful do not make decisions out of fear, greed and other emotions. As they know how to react when the market turns volatile.Many common investors while starting their investment journey, get excited and greedy in the bullish markets and are fearful when the markets turn bearish.But, how can you follow discipline so that your investments work for you at all seasons of the year?Let’s look at it this way - Imagine you are going on vacation, you wouldn’t wake up and go one day. To get the most fun out of your vacation, you plan your journey well in advance and prepare accordingly. A planned journey makes things more fruitful, enjoyable and less risky. Same goes for your investments!While creating your disciplined investment plan you need to have this in mind,
- A Goal-Based Financial Plan.
- Investments work with logic, numbers and plans. So keep your emotions out of it.
- Diversify your portfolio to reduce risk.
- Don’t change the allocation of your portfolio because of recent market trends.
- Avoid the herd mentality
- Track your investments
5. Focus on Risks, not Just Rewards
“The rule number one in investing is “Don’t lose money”. Rule number two is not to forget rule number one.” - Warren BuffetWhile investing, the most common mistake that every investor makes is ignoring the amount of risk you are taking to get the reward.When things are going well, it’s easy to focus on the rewards and gloss over the risks which can be a risk to your capital.But, it’s impossible to completely avoid losses but, the idea is to cut the probability of losses. Also, being aware of the risks you are taking.
Concluding ThoughtsThere’s a lot to learn from the strategies and experiences of these investment gurus. Every successful investor around the world, stresses the importance of goal-based investing for the long term.It is popularly said that if you are not willing to hold an investment for the long term as per your financial goal, then you shouldn’t buy it in the first place.So, before you start your investment journey, have these basic things in mind,
- Purpose of your investment
- The term of your investment
- Pick the right stocks
- Check your risk appetite
- Have a disciplined approach
- Review your portfolio from time to time.