How can you make heaps of money from the stock market while keeping risks to the minimum?
I always believe that you should never put your money in something you do not know about eventhough everyone is dumping their money in this particular stock and prices are rushing like mad.. That would be speculating or gambling. Sounds weird. Remember the internet bubble where a lot of investors buy internet stocks like crazy just because they had been going up and up.
Warren Buffett would never gamble or speculate. He would not invest in something unless he is sure or certain of what he is investing in. The common theory is that higher risks = higher returns. However you can turn the situation to your advantage by doing research on the companies you are investing in, like warren buffett and yet make higher returns.
Warren Buffett once said ‘Rule number 1, never lose money’. This is the main concept for value investing. He also said that I would rather be certain of a good result than hopeful of a great one. Wise words for value investors indeed.
So what are Warren Buffett’s secrets? Below are some of his criterias
1. Identify companies with high and growing ROE
2. Identify companies with 15% growth or more in earnings
3. Identify companies with high profit margins
4. Identify companies with book value growing regularly
5. Identify companies with debt/equity ratio of 50% or lower
6. Identify companies with high intrinsic value
The criterias I have identified above can be easily identified nowadays on popular sites like moneycentral.msn.com or other popular investment software. The most important criteria of value investing is margin of safety… So how do you guarantee a margin of safety?
The secret is actually very simple. To invest in companies, sectors or industries that you are knowledgeable about. It is also known as your circle of competence. You will need to know about the relevant industries that affect the industries that these value companies are in. You will also need to know the safety, stability and tax rates of the country and which the company is in.
You should also have a well diversified portfolio, selecting stocks in industries which you specialised in.
It all boils down to the 2 simple rules of investing.
1. Never lose money
2. Do your research/homework before you invest
Check out more articles and tips at http://bewarrenbuffett.com