One of the ways to learn something is to take advantage of the advice and experience of professionals. If you want to learn how to bake delicious cakes, watch a pastry chef at work, ask him or her for a recipe. If you are wondering how to increase brand awareness, seek advice from professional marketers and find out what techniques they use in their work. And if you are interested in investing, then it makes sense to find out what rules successful investors follow for successful investments. Today we will talk about this.
Investment rules from Warren Buffett for successful investments
Probably the most famous investor that even those with little or no knowledge of investment know about is Warren Buffett. In the Forbes ranking, he currently ranks 6th and is one of the richest people in the world. He earned his fortune mainly thanks to competent investments. Here are the basic rules by which he is guided:
- Investments must be long term. Buffett is an advocate of long-term investments. He believes that the shares must be bought for a long time, otherwise there is no point in such a purchase. According to the well-known investor, the assets acquired with the expectation of their growth in value in the future will bring the greatest return.
- Frequent transactions with assets reduce profitability. Buffett believes that the main disadvantage of active trading is a decrease in profitability due to the payment of a commission to a broker. Therefore, it is much more profitable to be patient and bet on long-term growth in value, and not on short-term fluctuations in quotations.
- Look out for undervalued stocks. It was investments in undervalued stocks that brought Buffett the greatest profits. He advises acquiring assets of unknown but promising companies with sufficient potential. The main challenge is to determine if the company really has growth potential. To do this, it is necessary to carefully analyze its financial condition, the prospects of the chosen direction of activity and the quality of management.
- When deciding whether to buy a stock, look at the company’s prospects, not past performance. Nobody belittles the importance of analyzing a company’s financial performance in the past. This allows us to trace the pace at which it developed, and how effective were the management decisions made by its leadership. However, it should be remembered that by purchasing shares, you are investing in the future of the company, and you, as an investor, should first of all care about the prospects for the development of the company.
- Resist market sentiment. One of Buffett’s core tenets is, “Be afraid when others are greedy, and be greedy when others are afraid.” This means that at the moment of a fall in the value of shares, when everyone in a panic begins to get rid of depreciating assets, one must not succumb to general sentiments. It is much more rational at this moment to acquire assets at a bargain price.
- Do not invest an amount that you are not willing to part with. This is one of the basic rules of investing, which not only Buffett adheres to. No one is completely insured against losses in financial markets. Therefore, you can only invest the amount that you can afford to lose. It is extremely irrational to channel the last money on investments. Before investing in any financial instruments, make sure that if you lose this money, your quality of life will not deteriorate.
Investing rules from George Soros for successful investments
Another well-known investor, George Soros, is distinguished by his unconventional approach to investment. He prefers risky deals and analyzes the market in terms of the behavior of its participants, rather than financial indicators and price dynamics. The main principles formulated by Soros include:
- There is no one-size-fits-all market strategy. Soros believes that using a single strategy in a constantly changing environment is absolutely ineffective. He prefers to act according to the situation, using new approaches in each case. Before investing a large amount of money, he tests his idea with a minimum investment. If the hypothesis justifies itself, he invests heavily. If not, it continues to test new approaches.
- You need to have time to identify stock trends before the bulk of the players on the stock exchange do. All market trends are largely driven by demand. The main task of an investor is to identify a trend before other participants pay attention to it. It is the moment of the emergence of a promising direction that is the most successful for investment.
- Do not rely on long-term forecasts. Soros notes that the market is extremely volatile, and no analyst can make an accurate forecast in which direction the market trends will change under the influence of many factors. Therefore, Soros does not recommend relying entirely on forecasts when making investment decisions. This does not mean that one should ignore expert forecasts. (bolingbrookmasjid.com) It is necessary to look through analytical materials to keep abreast of the current market situation. Quality analytics can be found on specialized resources like investing.com, broker websites, or investment marketplaces like Bristol House Corporation (BHC).
- The market is cyclical. Soros notes that whatever the situation on the market at a given moment in time, it will in any case change according to the established cycle: recession, rise, decline, and so on in a circle. Therefore, the investor recommends not to lose your head and not make impulsive deals.
- To determine market trends, it is necessary to study human behavior, not quotes. Soros is a proponent of the theory that the market is driven by crowd sentiment. To understand how the situation will develop, first of all it is necessary to analyze what actions the majority of exchange players will take in the current conditions. It is their actions that will set the trend that must be taken into account when making trade and investment decisions.
- If you are confident in your decision, take action. Soros is notable for his penchant for risky trades. He trusts his intuition, and if it tells him that the decision he has made is correct, then he will not doubt. The investor believes that it is necessary to follow his intuition and, conversely, trust the instinct of self-preservation, if this instinct persistently advises to refrain from a risky transaction.
Investing rules from Peter Lynch for successful investments
Peter Lynch is a renowned financier who is renowned for his ability to adapt to the situation and change his strategy depending on the current conditions. In professional circles, because of this, he is called a chameleon. Here are the basic principles that Lynch adheres to for successful investments:
- Invest in what you understand. Lynch argues that investing in industries you don’t understand is like playing poker without looking at your cards. In other words, you only need to invest in companies that are familiar to you. This will make it possible to draw the correct conclusions about the prospects for successful investments. If you are not versed in the production of household appliances, then it will be difficult for you to determine which of the manufacturing companies is more promising in terms of investment.
- Monitor the status of issuers. Even if you purchased shares in a company for the long term and do not intend to sell them in the next few years, still periodically study the financial statements of the selected issuers and other information about them. This is necessary in order to notice a negative trend in time and get rid of unpromising assets.
- It is necessary to rebalance the investment portfolio at least once every six months. This rule follows from the previous one. Lynch recommends revising the composition of the investment portfolio at least once every six months. This will allow you to maintain the ratio of assets in accordance with the chosen strategy, as well as get rid of assets that have lost their value.
- The ability to control their emotions for an investor is more important than high intelligence. Lynch believes that if an investor is prone to making impulsive decisions, easily gives in to panic and does not know how to think rationally in a crisis situation, then it is better for him to refrain from working in the market. He explains this by the fact that, under the influence of emotions, even a professional financier and analyst can make a mistake. On the other hand, those who remain calm make more rational decisions, even without great analytical skills.
