“One of the best ways to make progress towards your financial goals is to make your money work for you—or, in other words, investing.” SoFi

Investing your hard-earned money can seem challenging. After all, there’s an overwhelming amount of information, choice of accounts, and strategies out there. Plus, the markets fluctuate, and the idea of potentially losing money can create stress and fear.

By learning more about the process, understanding the business, and knowing what you are investing in— you’ll gain more confidence that you are on the right path.  It’s important to know what you need to know to get started, and how investing can help you achieve your goals

Before you invest, it’s important to understand your goals. Selecting an investment strategy depends on your goal amount (how much you want to save) and the time horizon (when you’d like to use that money). First, almost everyone should have these two goals:

• Create an emergency fund, and
• Save for retirement.

These are called “bookend goals”—your primary short-term and primary long-term goal. Your emergency fund is your primary short-term and a lump sum that you can easily access should an emergency ariset. This fund should be 6-12 times the amount you spend monthly, depending on how risk-averse you are. Retirement is your primary long-term goal and largest financial goal. Even if it feels very far away, it’s important to start saving early.

If you want to invest like Warren Buffett, you would need to invest in great businesses trading for less than their intrinsic values, and then hold on to these investments for as long as they remain great businesses and their fundamentals do not change.

“It’s better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.” Warren Buffett

1. Begin saving, investing and building wealth early. Live below your income.
2. Buy pieces of a business. A stock is a single share of ownership in a public company. When you buy stock, you become a part owner of the company.
3. Buy a business you know on Main Street and investigate it thoroughly.
4. Have a margin of safety and circle of competence. Draw a circle around the businesses you know or are capable of knowing. Also, own a business with a competitive advantage.
5. Be a business analyst and concern yourself with what is going on inside a business. Read and study businesses over many decades before you invest.
6. Learn to value businesses and buy pieces of businesses far below what you think they’re worth.
7. Set goals: 20% return on investments.
8. Buy a business with good economics and financial strength (free cash flow, revenues, earnings that will grow and less than it’s worth ( intrinsic value).
9. Look for and invest in a business with a history of earnings, little debt, and management that manages the business for the benefit of owners.
10. Buy a business with a strong and enduring moat.
11. Buy a a lot of a few businesses and buy to keep. Buy very few things, but buy very big positions. “Buy so we’ll, you don’t have to sell.” By holding, you save on taxes and avoid transaction costs. Also, “diversification serves as protection against ignorance. “
12. Power of compounding works best when you concentrate your investments and you buy to keep.
13. Keep it simple.
14. Sell only if something fundamental changes within the business or if a better quality investment presents itself.

Learn the basics of value investing

Warren Buffett is widely considered to be the world’s greatest value investor. Value investing prioritizes paying low prices for investments relative to their intrinsic values.  Value investors seek out and invest in companies with intrinsic values that are well above the enterprise values implied by the prices at which the companies’ stocks trade. Value investors like Buffett expect that the market will eventually recognize the full value of a currently undervalued company, resulting in an increase in the company’s stock price and a profit for the value investor.

Essentially you’re looking for outstanding businesses, operated by top notch managers, and selling at an attractive price. The most successful investing involves lifetime ownership and concentrating your wealth. Know what you own, own a few, and buy a lot. “Money will not change how healthy you are or how many people love you,”  Warren Buffett says. A man is rich according to what he has; he is wealthy according to who he is.

To be the best, you must study and learn from the best.

References:

1. https://www.fool.com/investing/how-to-invest/famous-investors/warren-buffett-investments/
2. https://d32ijn7u0aqfv4.cloudfront.net/wp/wp-content/uploads/20170718165706/Guide-to-Investing-Intelligently_V5-1.pdf