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17 May 2021 | Insights

Investing basics: How to invest like Warren Buffett

 

Investing basics:  How to invest like Warren Buffett

Warren Buffett turned 90 years old last year and despite his grand age, is still a beacon for many investors, old and young.

Countless books, blogs and articles are published on the so-called Sage of Omaha and his investing skills. Morningstar is not short of them either, one of the reasons for this being that we are one of the few research firms that consistently covers Berkshire Hathaway.

If you’re looking for the basics of how to invest like Warren Buffett, the shortest version is to look at this 1985 TV interview, his first apparently, where he candidly described some of the most important rules and principles to become a successful investor.

Buffett relies on a relatively simple set of rules and principles. Let’s look at some of them:

The first rule and the Margin of Safety

One of the most important rules that Buffett regularly cites is “The first rule of investment [is] Don’t lose money; and the second rule is: Don’t forget the first rule.” That is basically his definition of risk which is the permanent loss of capital.

Simply said, if your investment loses 10 per cent, you need a 11 per cent return to recoup it. If you lose 50 per cent, you need a 100 per cent (1/0.5 – 1) return to break even.

To protect from the risk of losing money, you can use a principle set by Benjamin Graham, Buffett’s mentor and long-time friend, which is called the “margin of safety”. This is sort of a discount if you will, that will protect you from any mistake you might make when assessing the intrinsic value of a business.

Continue reading Morningstar‘s article with the rest of Warren’s tipshere.