Buffett doesn’t just hold stocks; there is always a specific reason behind his purchasing decisions. If that reason has gone, he sells the stocks. He looks for the following three things:
- Good price
- Sound management
- Competitive advantage
Invest the right way à la Buffett by following his key principles as described in an article on the addicted2success.com website.
Know what you are investing in
If you are thinking about buying stocks, you must understand what the company does and how it creates profit. Tech stocks, for example, may be difficult to understand completely, which is why Buffett has always been reluctant to invest in tech companies. He prefers investments in what he knows: his portfolio includes banks, insurance companies and companies in the business of consumer products. He has a very good knowledge of all these sectors.
List your criteria before you invest
The best way to ensure you don’t fall for investing in something unfavorable is to make a list of criteria for selection. You may focus on a single industry or you can set a certain price to earnings ratio of the stock. Price should never be the sole criterion on which you are basing your purchasing decisions.
Invest aggressively when times are tough
If you are a long-term investor, exactly when you buy does not matter so much. Even during tough economic times you need to keep looking for opportunities. Things will eventually turn around and you will collect your reward.
Daily fluctuations are not important
Only invest in stocks with which you would be comfortable even if the stock market were to shut down for ten years. If you invest in such stocks, day-to-day minor changes will not unduly bother you.
-jk-