Now that you know Warren’s Investment strategy, are you aware of how to apply it in building your portfolio?
- Learn the basics of investing: To invest like Warren, you need to understand the basics of investing – what makes a share goes up and down? When to buy a stock and when not to buy and so much more. Because we know how important this knowledge is, Bamboo has provided resources to help, with the Bamboo Stock Market Course, Bamboo Watchlist, and the Bamboo Content Hub.
- Don’t follow the crowd: After understanding how the market works, you can now make decisions by yourself. Just because everyone is rushing to buy or sell a stock, doesn’t mean you should follow. Make your own research and understand the market to make your decision. Also, don’t be a contrarian and sell stocks everyone is buying. As Warren does, the best way to invest is to ignore the crowd entirely and find value on your own. Let it be your decision, not the crowds.
- Look for a margin of safety: Look for companies that help protect investors from losing money. For example, if a stock sells for $30 per share, but the company’s assets are realistically worth $35 per share, then there’s a $5 margin of share. The margin isn’t always high but it helps to prevent the stock price from falling too significantly.
- Focus on quality: Just because a share price is cheap, doesn’t mean you buy it. You will hardly see Warren buy stocks of a struggling business just because it’s cheap. Research and make your decisions.
- Don’t be afraid of a decline: The most important trait of a good investor is to know when to buy and when to sell. A good investor doesn’t panic in a down or correction market. Try to see declines as discounts, an opportunity to buy more of your favourite stock. As Warren said, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
- Don’t be afraid to switch: In reality, scenarios change. A couple of decades ago, Warren bought a large share of Freddie Mac, a few years before the financial crisis, he noticed the company’s management had started to take unnecessary risks with the company’s capital, and then he decided to sell his shares. A few years later, when the financial crisis hit, it became clear that Warren’s move was indeed smart.
- Approach with a long-term mindset: Stocks aren’t something you go in to cash out in a month. Warren doesn’t buy stocks because he thinks the prices will rise in a week or two, but because he wants to own the businesses for the long term.
- Don’t lose money: Yes, we know losing money is inevitable. Even Warren has lost money. But he goes into the stock market with a winning strategy, not an “it is okay to lose money” attitude.
- Research and Reflect: Warren spends majority of his time daily sitting and thinking. He reflects on his investment decisions, researches, trims budget where necessary, buy and sell when he feels ready. To help with your research, you can add companies you read on the Bamboo Watchlist on your profile on the Bamboo app and monitor or read the news section attached to each company to keep you abreast on information and help make your decision.