This is how Warren Buffett's Golden Rules make money
Warren Buffett is the best investor of all time, which has led him to be one of the richest people on the planet. His numbers speak for themselves. He has converted each dollar invested into half a million dollars, so an investment of 100 dollars would now be 50 million, although they are astronomical returns, this was achieved by applying rules that we can all apply in our daily lives, so in this article we are going to see what those seven rules are that we can all apply in our daily lives.
The profitability of Buffett's company BERKSHIRE HATHAWAY INC. has been significantly higher than that of the S P500. Berkshire has multiplied by 10,000 while the SP500 has multiplied by 140??
Now pay attention because we are going to see the seven rules that Warren Buffett applied to achieve this. Albert Einstein once said Compound interest is the most powerful force in the universe and this is not said by just anyone, it is said by the most important scientist of the 20th century. Compound interest makes your money grow exponentially and is one of the simplest secrets to Warren Buffett's success. We are going to do a simple exercise: we assume that we invest ten thousand dollars or euros and we obtain the average profitability of the stock market of the last 100 years, 9 percent. If we do not reinvest that 9% of annual profit, our assets would grow from this So if we reinvest the 9 percent that we earn annually, the difference is quite notable since growth accelerates due to the snowball effect. This is the magic of compound interest, but this can still be greater if we make a monthly contribution of, for example. $200 the return obtained improves considerably, as I say, we are considering an annual return of 9%, something reasonable since Warren Buffett has achieved 23 percent per year on average, so just by reinvesting , we will multiply our assets by 4 if we also contribute 200 dollars or euros per month we would be multiplying it by 12 so if you can reduce some small day-to-day expenses in your personal finances to be able to make contributions you will notice it in the future and you will benefit from the interest compound
Another rule of the great investor is to control the emotions that are bad traveling companions on the path of investment. If you have a temperament that means that when others are afraid you also get scared, in all probability you are not going to make a lot of money with stocks. , if you don't look at the quotes but of course everyone is urging them to look at quotes and not only that they urge them to buy and sell something based on small changes in quotes this is not rational however people are much more rational when they invest in farms than when they buy stocks and if you buy a farm you get some profits next month next year so if you buy an apartment building and rent it you get that income next month when you buy a farm what you expect is that it will produce a number of kilos of soybeans or corn, if you do it, it meets your expectations but when they buy a stock and it is going down, they often get nervous selling at a loss, just as buying when an asset is going up is not a good idea either because there will be a certain correction, that is, if you do not have that temperament It will scare you every time others are scared and wait for someone to tell you when to buy and only then will you regain your courage in the words of Warren Buffett for a long-term investor term the dumbest reason in the world to buy a stock is because it is going up, in March 2020 panic broke out in the stock markets with the start of the pandemic and many investors sold out of fear so it is very good for us to be very cold in the investment?
the greed of the rest to sell high, let's remember something that Warren Buffett just told us: they look in the rearview mirror and say: I didn't make money last year. I want to make more money this year, so this year I'm going to borrow money. to invest in an interview Mohnish Pabrai was asked about his lunch with Buffet where he had asked Buffet about Rick Guerin, a partner of Warren Buffett and Charlie Münger, and Warren Buffett has said on occasions that Rick had as much level as Charly and although he is quite unknown What happened to Rick was that he was too ambitious and wanted to get rich faster and, to do so, he leveraged himself to invest. He went into debt while the market was going up, no problem, but in the crash of 1973 with sharp declines in the stock market, Rick had several margin calls, meaning he was forced to sell?
Distinguish between price and value The price is what we pay for a share and it is public information. The intrinsic value is what we receive and does not have to coincide with the price. With this information we can know if a share is expensive or true, if it is expensive or cheap with respect to its intrinsic value, which is the same as the real value of the share, that is, the business or also called the target price, when the intrinsic value is higher than the price, the share will be cheap, otherwise the share will be expensive.
领英推荐
An example is when Buffett bought Apple at the beginning of 2016. The vast majority of us know Apple's products and its services. It is a company with strong competitive advantages with a very high brand power that makes Apple's customers very loyal to the brand. of buying an excellent company a crucial aspect was the price he paid for it we can see that he paid only a 10 for apple the most lower than what the company has traded in the last 15 years, the result is that it has multiplied its investment by more than 7 times in six years
Patience when buying a stock indicates that you should not hit all the balls you receive, you will know many stocks from news, friends, YouTube, etc., but no one forces you to invest in them, you can be waiting a week, a month, a year until the good opportunity appears. I have the old-fashioned belief that I can only make money by investing in things I understand and when I say understand I'm not simply saying what the product does or anything like that, I mean understanding how the business may be in 10 or 20 years and in general what the economy will be like, the Bradley cycles in 10 years.
Having liquidity helps us deal with unforeseen events and to be able to take advantage of good opportunities that arise. This should not be confused with having cash for the sake of having it, since cash loses value, but getting some prepared liquidity is good before looking at the most important rules. It is important to stay with the following if We have some liquidity and we invest without getting into debt in good stocks that are cheap, taking advantage of other people's fear, taking into account that it is in stocks that are within our circle of competence and we are patient, we will have a lot to gain to be good investors and to be able to benefit from the compound interest . This leads?
?Another rule, never lose money, may seem obvious, but what it means is that we must invest with care and, keeping the risks under control, make very few mistakes. Before seeing how much we can win, first see how much we can lose. The safer the investment, the less we will lose.
These are the principles and rules of the greatest investor of recent times. If you apply these tips to your personal finances consistently, you will surely have a much better chance of being able to obtain benefits and multiply your assets.