Simplicity Is The Key To Investing

Warren Buffett has said that the first rule of investing is to never lose money. The second? To not forget rule number one. Simple enough. What Buffett is reminding us of is that investing is defined as capital preservation with the chance of appreciation – thanks to Buffett’s mentor, Benjamin Graham. Think about that. Buffett, reflecting his mentor, is saying that above all else – you should be looking for opportunities in which there is zero or little chance of losing your principal. Investing is not rolling the dice and hoping your “investment” appreciates. Investing is more a process of knowing that your principal is safe and that there is a good chance of gains, whether large or small.

Echoing Buffett again, investing is not like baseball. In investing, you can stand in the batter’s box all day and watch strike after strike go by – meatballs even – and still be in the batter’s box. There is no 3 strikes and you’re out in investing. Take your time. Wait for the perfect pitch. You can’t strike out! Don’t get caught up in a fleeting trend and neglect doing your research. Wait for your pitch. Understand what you’re investing in and make sure that you’re not going to lose your shirt by taking action. Errors of commission are always worse than errors of omission in investing. You can’t lose your principal by erring on the side of caution.

Warren Buffett thinks of stocks just like he thinks of hamburgers. He has remarked that when the price of hamburger goes down, he eats more hamburgers. Makes sense doesn’t it? For some reason, most people do not take this reasoning to stocks. When they go down in price, they freak out and sell into the frenzy. Instead, treat stocks just like hamburgers; buy more when the price goes down. Remember that price is what you pay and value is what you get. You can overpay for even a great hamburger. You can do the same for a great stock. Buy more stocks, hamburgers, and other things when they go on sale!

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