“No syok-lah like that…true or not?” ?

Human beings are by nature, greedy. Sure, we all want good things the easy way. We are attracted to get-rich-quick schemes and new investment products promising double digit returns and pounce upon tips and “inside info” in our hope to “game the system” and win big. We buy lottery tickets and gamble, hoping that somehow, sometime, we will “hit the jackpot” even though we know the odds are stacked against us.

Human beings are also by nature, lazy. While this may be a generalization that does not apply to the super-productive and super-industrious, the rest of us are guilty as charged. Seriously, who really wants to spend all that time researching potential investee companies, or read through a 100-page prospectus or annual report? We’d much rather relax and watch the latest movie, while relying on rumours and tips from family and friends to guide our stock investment decisions.

Alas, there are negative consequences associated with of adopting this kind of investment mentality. You could lose money by picking the wrong stocks. A lot of money. And before long, your investment portfolio could turn into an embarrassing failure.

At the other end of the scale, are the awe-inspiring investment portfolios of the successful investment gurus of all time, such as Warren Buffett (yup, everyone has heard of him, right?).

So, how do successful investors like Warren Buffet manage and grow their investments? Read on to find out tips and strategies for investing in stocks from the guru of successful investments, Warren Buffett, which you can take on board to minimize your investment risks.

Do Your Own Research

Firstly, don’t rely on forecasts. Do your own research. Warren Buffet is a great believer in putting in the hard work necessary to fully understand the company’s fundamentals. Sadly, it would seem that there is no short-cut to successful stock investment. You must be prepared to spend the time to do research, read the latest articles, monitor stock prices, do your fundamental and technical analysis, and constantly monitor the market.

Also, look carefully at the quality of the business you are investing in, gauge its staying power and competitive advantage. Determine the company’s true worth. Look for more value in terms of discounted future cashflow, than what you are paying for.

Invest in What your CAN Understand

He also advocates only investing in companies whose businesses you fully understand and are within your “circle of competence”. The intrinsic value of the business must be self-evident. Ideally, the company should also have been around a long time. The company should have been successful for a long time as well. They should be able to explain their business in a brief sentence.

Business with Clear Advantage

He favours companies with a clear advantage over others, and a sizeable buffer against competition. In fact, he looks for businesses that are so wonderful, that even an idiot could run it. Why? Because he predicts that sooner or later, an idiot will run the company; and he intends to make sure that his investment remains secure no matter what!

Business with Right Management Team

Having said that, he also looks for companies managed by the right people, whose focus is building up the long-term value and in so doing, working towards greater benefits for shareholders. He is wary of companies managed by individuals intent on building empires who are less likely to return profits in the form of dividends to shareholders.

Understand the operation

His next piece of advice is to ensure you have a deep understanding of the operating side of the business to help you forecast future business performance. Look for a consistent operating history. Look at the business fundamentals, not the market, or the economy, or even investor sentiment.

Proven Data and Good Track Record

Also, he likes data, data and more data – as the numbers never lie. He advises investors to use data to carefully evaluate and analyse whether the business has viable and favourable long-term prospects. For this reason, he is not swayed by fads and new technologies. He tends to stick to established businesses.

In terms of fundamentals, he emphasizes Return on Equity (ROE) over Earnings-per-share (EPS) and favours low-leverage companies with high profit margins.

In conclusion, Warren Buffet’s approach seems to be this – if the facts and figures don’t work out exactly the way you want them to, don’t invest. Do your own research and don’t be swayed by market sentiment. This is an approach that has served him well as he is really one of the most successful investors of all time. In fact, Forbes 2013 has rated him as the 2nd richest person in the USA and the biggest dollar gainer, having added USD 12.5 billion to his fortune!
Follow his approach and turn your investment portfolio into one that you can be proud of!