Warren Buffet is considered one of the fathers of stock market investors. He started investing in stocks at the tender age of 11. He currently holds 8th position among the top 10 list of highest net worth and holds about $136.1 billion to his name all made through the stock market.
He is the CEO of Berkshire Hathaway, which owns the companies like battery manufacturer Duracell, Insurance company Geico, and restaurant chain Dairy Queen, and has stakes in the parent firm. The Big Bull is also a philanthropist by nature and has given away $56 billion in charity causes through Gates Foundation.
Listed below are the top investment guidelines that a newbie can follow in order to take baby steps towards investing in the stock market;
Keep your investment in firms with high intrinsic value:
This means that people should invest in stocks whose value has a growing tendency. Intrinsic value of a stock can be found out by fundamental analysis of the Company’s financial system such as ratio analysis, cash flow analysis, profit and loss & balance sheet comparison etc. If the stock has a tendency to grow financially, it will keep the investors in profit and vice versa.
Interest Rates : Value of Assets :: Gravity : Matter
In order to be successful at the market, one needs to buy and sell shares according to the trends. A lot of factors determine the prices of the stocks. One of them is interest rates. If the interest rates at what money is available for taking loans are low, people can borrow more and invest in the market. Due to this, if the investment in a stock goes up, the prices of the said stock would also go up leading to increased market capitalisation. This is due to an increase in demand for the stocks. Demand and Price are directly proportional. Increase trend is known as the bullish trend in the market.
Similarly when the opposite happens, that is, borrowing interest rates rise, people tend to withdraw from the market leading to a fall in the price of the shares of stocks. This is a good time to buy stocks as the price is comparatively low if an investor has money at the time. This is often referred to as the bearish market trend. Again when the price rises over a time period, the person can sell off the shares in order to gain a profit.
Let your investment be there for 7 years
According to Warren Buffet, it’s best to keep your investment for a time period of 7 years for the initial amount to grow. But he also advises to keep 3-6 months income aside in case a recession is looming ahead. Within the time period of 7 years, a country’s economy generally completes a cycle and comes back stronger thus strengthening the market.
Bearish Markets are a good time to buy stocks and Bullish markets are meant for selling
If the market is currently going through a bearish trend and prices of stocks are coming down, it’s a good time to invest in them as it will be cheaper and can be sold during a Bullish trend. The cycle depends on the demand and supply of stocks in the market.
Try Investing in low cost index Funds that has good value
Index Funds can be defined as a list of stocks or a stocks portfolio that performs the same as the financial market index. Investing in index funds like S&P Global 500 slowly and steadily every month can result in a very big accumulated value in the long run. It is surely a more risky way of earning profit and a person who needs money in the short term or has a light heart should be away from the market as the investment is subject to market risks. But it is also beneficial for those who take the plunge.
Fun Fact: The number of shares remains the same in the market but its price changes according to the D&S. The number can only change if there is a rights issue or a further stake issue in the market by the Company’s Promoters.
