When IronTrade traders think about the most prominent investors, Warren Buffet’s name always comes to mind. He is among those who made their fortune by trading and investing money in different stocks and assets. His knowledge is not a secret as recently he started to share it with all those in trading. In this article, we will review three main rules that Mr. Buffet is always adhered to. It is definitely worth listening to. Primarily he describes his experience with stocks, but some things are also valid for currencies and other assets.
1. “If the business does well, the stock eventually follows.”
It means that when you buy some asset, it is not just words on your screen. It is a part of a real-life company if it is a stock or real money if it is a currency pair. So, any asset has a set of distinctive characteristics, advantages, and disadvantages. Also, the assets price depends on the real people’s decisions. So, try to focus on companies or governments that do their job well. Any business is only worth money if it can generate some cash flow. Remember: a company’s real value is more important than its market price.
2. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
As we know, W. Buffer is a value investor. He buys only those companies that perform well and value a fair price. A company should not be overvalued because otherwise, it will not yield impressive results. A perspective company can potentially grow much faster than a situational business in the long term. The last one is aimed only to serve short-term demand. For example, in 2008, when the financial crisis hit, Mr. Buffet bought high-performing companies like Goldman Sachs and General Electric at a relatively low rate. Ten years later, they cost $13 billion more. Not a bad investment, isn’t it?
How to know if the company’s price is fair? Well…it comes with experience. So first, look at several specific criteria to evaluate it: price to earnings ratio, earnings per share, and some other metrics. Of course, remember that there is no metric that can predict the future super accurately.
3. “Be willing to be different.”
Don’t be afraid of being different from time to time if you feel the need for this. It is you who is responsible for your money and all the risks. Try to concentrate on facts and your own analysis of the situation. Even if the market is against you, you can still explain why you made a specific decision.
In 1956, when young Warren Buffet collected $100,000 from different investors for private management, he refused to reveal how he would allocate the money. Ten years later, his fund was worth $100 million.
On IronTrade, we offer only trading with currencies and commodities, but you still can use the rules of W. Buffet to choose the assets wisely and put your new knowledge into action. Just remember that you are responsible for your well-being and your future. So, choose wisely. Good luck!
