You'll get a million and one different opinions on hot stocks and the latest company to invest in. What has worked for us is following the strategy of the worlds most successful investor, Warren Buffett. The strategy is simple and straightforward. The reason most people do not take the advice we are going to share with you is because it requires patience, discipline, and independent thinking. That's it! Here is the strategy, philosophy, and steps when you go to choose your next investment.
Value Investing
This simply means looking at the underlying value of an investment and determining the rate of return for the future years to come. The reason behind looking at the companies value is because the media and stock market will be booming one minute and in a recession the next. If you rely on listening to news and the opinions of others in the media (when there opinions change as much as the weather) you will drive yourself crazy! The value of a company is not its stock price. When you know this you can take advantage of value investing to capitalize on the emotions of others.
Philosophy
The philosophy is simple. By valuable companies and hold. These companies grow year after year for decades. When you are patient and hold, the compounding increases. When you buy and sell frequently like most day traders do you hurt yourself on multiple levels. You have to pay fees to your broker, eliminate any compounding effect, and have to pay the capital gains tax on top of it. Buy, hold ,and wait.
“You don't make money when you buy and you don't make money when you sell. You make money when you wait.” - Charlie Munger
Next Steps
When you choose your next investment think in terms of ten years from now. Will this company be around in ten years? Will they become obsolete? What will your rate of return be in ten years? What do the economics of the business look like? Answer these questions before taking action and if the answer to anyone of these questions is no, then move on to the next company. The game of investing is good to those who buy valuable companies at low prices, go against the general consensus, and are patient. If you do these things you will be a wealthy individual.