Don't tell me where your priorities are.

Show me where you spend your money and I'll tell you what they are.

-James W. Frick

Plan YOUR work! Work YOUR Plan!

Wednesday, January 7, 2009

Investing Tips From Warren Buffett

MSNBC recently ran an article on 10 investing basics from Warren Buffett. Warren Buffett is becoming one of my favorite people. He is rich but he became rich by being smart about his money and listening to his gut. I want to start investing once my debt is gone and possibly buy some investment properties. Just basically make sure that I can retire by 50, 23 years from now. If I could retire earlier from working for someone else and work for myself that would be great, that’s my goal!

So Buffett’s tips are:

Be Frugal- Buffett lives in the same small three-bedroom house in Omaha, Neb., that he bought more than five decades ago. He drives his own car. He owns the world's largest private jet company, but he flies commercial.

Wait for the 'fat pitch'- Resist the itch to constantly buy or sell stocks. Have the patience to wait a long time until some market turbulence brings the "fat pitch," as Buffett calls it, or stocks of great companies trading at really cheap valuations.

Be a contrarian- A great way to make money is to go against the crowd. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful"

Stick with what you know- If you don't understand a company's product or how it makes money, avoid it.

Don't depend on others to say you're right- If you are in need of constant affirmation about your investment decisions, particularly from the stock market, you won't be able to invest like Buffett.

Buy companies cheap- The key throughout this analysis is to look back over five years or more. Buffett wants to see a consistent operating history; he's not into startup companies. He also prefers to gauge how well a company does in different kinds of markets, not just the good times or the latest quarter.

Look for companies with economic moats- A key characteristic supporting the consistent operating history is a sustainable competitive advantage. In other words, a company should have a barrier to entry -- or a kind of moat -- that keeps potential competitors at bay.

Buy big, concentrated positions- Most professional money managers protect against risk by diversifying. Buffett goes against the crowd here, too. When he finds a company he likes, he piles into it big time.

Hold for life- Embedded in this concept are two key Buffett tenets I've already alluded to. First, it's only worth investing in companies that are good enough to outperform for decades. Next, you have to think on your own and avoid the madness of the crowd.

Believe in America- Buffett doesn't tweak his portfolio depending on which party is coming into office or where we are in the economic cycle. This may make him seen naive. But it also has him putting money to work now, when many others have lost faith in the U.S. economic system. It's a move that will likely make him a winner down the road, yet once again.

These tips seem pretty basic, for the most part. So why aren’t more people following them?

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