1, looking for excellent companies
Buffett's first investment principle is "looking for excellent companies". This principle is based on the common sense that the intrinsic value that managers can trust in a well-run company will definitely be reflected in the stock price. Therefore, the task of investors is to do their own "homework" and find out those truly excellent companies and excellent managers in countless possibilities.
Buffett always favors those enterprises that are stable in operation, pay attention to integrity and have high dividend returns, so as to avoid stock price fluctuations to the maximum extent and ensure the preservation and appreciation of investment. As for those enterprises that always want to squeeze the blood and sweat of investors through rights issue and additional issuance, they are all turned away.
2. Less is more.
Buffett's second investment principle is "less is more". His reason is also based on a common sense: the more shares you buy, the more likely you are to buy some enterprises about which you know nothing.
Usually, the more you know about an enterprise and the deeper you pay attention to it, the lower your risk and the better your income. He believes that investors should put all their eggs in one basket, as suggested by Mark Twain, and then observe carefully. Buffett adopts the strategy of concentrated investment and holds a small number of stocks in heavy positions.
3. Make a big bet on high probability events.
Buffett's third principle is "make a big bet on high probability events". In other words, when you firmly believe that you have a great chance, the only correct way is to invest heavily.
This is also based on a common sense: when something is likely to succeed, the more investment, the greater the return. Most value investors are inherently conservative. But Buffett is not. His $62 billion investment in the stock market is concentrated in 45 stocks. His investment strategy is even more radical than this figure. In his portfolio, the top 10 stocks account for 90% of the total investment.
4. Be patient
Buffett's fourth principle is "be patient", that is, don't change hands frequently before you have a good investment target. He has a saying that investment in less than four years is a fool's investment, because the value of an enterprise is usually not fully reflected in such a short time, and the little money you can earn is usually divided up by banks and taxes.
According to statistics, Buffett has invested in every stock for no less than 8 years. Buffett often quotes legendary baseball hitter Ted Williams: "To be a good hitter, you must have good balls to play." If there is no good investment object, then he would rather hold cash. According to Morningstar's statistics, cash accounts for more than 18% of Berkshire Hathaway's investment proportion, while most fund companies only account for 4%.
Don't worry about short-term price fluctuation.
Buffett's fifth principle is "Don't worry about short-term price fluctuations". His theory is that since an enterprise has intrinsic value, it will be reflected, and the problem is only time. No one in the world can predict when and what kind of stock price there will be. In fact, Buffett never believed in so-called predictions. The only thing he believes, and what we can grasp, is the understanding of the enterprise.
He bought the stock on the assumption that the stock market would close the next day or would not reopen for five years. In other words, we have absolute confidence in the future of the company. According to the value investment theory, once you see the market fluctuation and think it is profitable, investment becomes speculation, and nothing affects investment more than gambling mentality.