Warren Buffett is widely considered to be one of the greatest investors in history. He didn’t get this position by chance. Over the last 70 years, he has built up a huge fortune by following a set of rules. It continues to be used today.
All investors can follow these rules to improve their investment process.Indeed, I follow some of Buffett’s practices to help me Choose an investment And reduce the risk of losing money from my choice.
So, the rules we use today to invest a £ 5,000 lump sum from Omaha’s Oracle are:
Buffett’s rules for success
The first rule of billionaire investment is Avoid losing money.. This is not as easy as it sounds. Even Buffett bought an investment that would cost him.
However, this advice does not mean that we should avoid selling stocks at a loss. Instead, Buffett wants to understand how important it is to avoid companies at risk of bankruptcy. These include speculative investments such as early mining and oil exploration companies. Early-stage tech companies can also cost investors if they struggle to produce commercial products.
With this advice in mind, I avoid investing a £ 5,000 lump sum in a company that may run out of cash. This includes small miners, speculative penny stocks, and high-debt companies.
When looking for an investment, one of Buffett’s first questions to ask himself is whether he can understand the company. This is also what I follow. Some companies are difficult to understand. It includes how they make money and how they benefit investors.
Even if these companies are strongly demanded to invest, I avoid them because there is no better way to lose money than to buy something I don’t understand. This approach has helped avoid some disasters in the past. These companies were market lovers, but their complex business model was designed to hide fraud.
The third and final Buffett Rule I follow to invest a £ 5,000 lump sum today is to focus on the long term. Omaha’s Oracle states that investors should consider stocks only if they plan to hold them for the next 10 years.
This spirit forces me to complete the extra work to understand the company and make it completely comfortable to hold it in the portfolio. If you know you won’t sell for the next 10 years, you’ll want to make sure you’ve bought the right stock.
After enough research to understand the inside and outside of the company, it will be easier to maintain your investment. Especially through the mountains and valleys of the market cycle.
Rupert Hargreaves does not have a position in any of the shares mentioned. The Motley Fool UK does not have a position in any of the shares mentioned. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, given the various insights, A better investor than us.
How to invest £ 5,000 using Warren Buffett’s rules
https://www.fool.co.uk/2021/12/19/how-id-invest-5k-using-warrn-buffetts-rules/ How to invest £ 5,000 using Warren Buffett’s rules