“An investor needs to do very few things right as long as he or she avoids big mistakes.” Warren Buffett

One of the world’s most successful investors, Warren Buffett is the richest man on earth. Chairman of the Berkshire Hathaway, Buffett’s wealth jumped by $10 billion to hit $62 billion during 2007. Buffett’s life is an encouragement for investors across the globe.

So what makes the world’s wealthiest man so rich? Buffett believes that successful investing is about having common sense, patience and independent research.

A look into Buffett’s simple, yet intelligent mantras for investing and minting millions.

1. Focus on not losing money rather than making it. Don’t own any stock for 10 minutes that you wouldn’t own for 10 years.

2. A frugal billionaire Buffett believes in straightforwardness. He advises investors to take easy decisions. Never buy when you are doubtful. Invest only if you understand the businesses well.

3. A proponent of value investing, he believes that one must take decisions on his own. He doesn’t believe in listening to analysts or brokers. The best investing decisions come from oneself.

It is not necessary to do extraordinary things to get extraordinary results.

4. Buffett advises to invest in ‘old economy’ businesses, companies, which have been around for fifty years and will continue to have a long innings.

5. We have often heard of people suffering heart attacks when markets crash. Well, Buffett advocates a sound temperament for stock market success.

6. You don’t need to be a genius to succeed in the stock markets. People who can stay cool will succeed in the long run. Always keep in mind the hidden costs, from commissions on active stock trading to high mutual fund fees.

7. Buffett always looks at businesses he can understand; look at the profits in the past, long-term potential of the company, good top level management of the company and companies that have a good value proposition. The strategy is to think about the business in the long term.

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

8. Invest in businesses with great management. Always keep a track of the management of the company. The top decision makers have a lot to do with the company’s performance.

9. One of Buffet’s biggest strengths is independent thinking. Many people go by what the experts says or what others do but belief in one’s own judgement is the key to stock market success.

10. Patience pays, says Buffet. He says one must not worry too much about the price of the stocks. What’s more important is the nature of business of the company, earnings capability and its future potential.

Good investors never rush to make money. They give time, thought and work on investment decisions. The mistakes that others make should be a lesson for you.

Keep in mind, you cannot have your bread and eat it too. Saving and consumption do not go together. You need to plan today for the lifestyle you want after tomorrow, i.e. the finances you will require after you retirement and etc.. Accordingly, save the necessary fraction of your income to invest in equities. Equities, or stocks, may appear risky, but they are just volatile, they go up and down, and time is the perfect hedge against volatility.

Rule No 1: Plan for future, begin today. Start saving for it now! Stagger your investments throughout your earning phase. Invest on a regular basis and invest for the long term to buy in at an average price that includes both markets’ up and down ticks.

Never wait until you have large amounts of money to invest. However small the amount you are able to save, start early. The earlier you start, the better are your chances of making huge wealth. Remember to make great gains. Time is a crucial factor, as wealth creation is a factor of both the power of compounding and the returns on your investments.

Rule No 2: Start early so that the power of compounding begins sooner; time is the magic that converts pennies into dollars. In exuberant phases, when we have earned good money from our investments, most of us get greedy, and derivatives and futures provide an outlet for the expression of human greed. While such instruments often satisfy the whims of human greed, if taken to unrealistic levels, irresponsible investment in these securities can lead to financial ruin.

Rule No 3: Do not leverage, it is difficult, if not impossible, to predict short-term trends.Buy markets, not stocks. We all know that our economy is in a secular phase of prosperity and the stock market is the best proxy for the growth of an economy. To benefit from our soaring economy, buy the market as a whole and not any single stock.

Consequently, Rule No 4: Buy stocks that mirror the broader indexes, but never buy a single, or a handful of stock exposures. This means that you need to spread your risk across various market segments in the event a particular stock does not perform for reasons beyond the company’s control. It is easier to predict company earnings, but difficult to predict stock prices of the same company in the short run. Ironically, over the long term, stock prices mirror growth in a corporation’s earnings.

Rule No 5: Look at company earnings, not at stock prices. Stock prices may tempt or give the wrong impression of a company’s welfare. But to build real wealth in equities, you must always rely on declared profits and facts, rather than make decisions based on stock movements. We all tend to sell stocks when we have made profits and keep the ones that have not appreciated. Eventually, we end up holding a portfolio of companies that are not performing! It is only human to sell for profits and not to want to take losses.

Hence, Rule No 6: Keep the winners, sell the losers. Stay on top of your investments. Check constantly for stocks that are not performing and eliminate them from your portfolio if the outlook does not seem promising. This way, you will have all winners left in your portfolio to take you to your goals.

In good times, we all tend to believe that the good times will last longer than they actually will. And before D-day, we will be able to sell our investments that were bought at unjustified levels. Just then, it happens that the markets turn and before we can sell out, we are left holding the bag.

Rule No 7: Avoid being the “Bigger Fool;” it is imperative that you recognize the difference between price and value. Buy value and not momentum. When investing in stocks, your head should prevail over your heart. Resist the urge to get consumed by market chatter. Ignore hot tips from dealers and friends. It is advisable to do your own home work.

As the result, Rule No 8: Select stocks with your brain, not your heart. Large-caps are the ones that have already proven themselves over longer periods of time and have the balance sheet acumen, strong cash flow and brains to manage businesses effectively according to prevailing situations and realistic opportunities available.

Rule No 9: Choose large-cap stocks to small- and medium-caps. Investment in small and mid-cap stocks requires expertise and strong tracking abilities, that without, your portfolio will under-perform. Do not short sell a stock just because it is going up, and thus, one day it must come down. Newton’s law is not applicable to the markets. What goes up does not necessarily come back down! If companies are able to sustain earnings’ growth for long periods, then its stock may go up, up and up, or it can even remain high without any reason for a long period of time.

Because of this, Rule No 10: Markets can remain absurdly up, or continually climb for the right reasons. Therefore, never go short. It will expose you to unnecessary risks.

Age: 75

Fortune: self made

Source: Berkshire Hathaway

Net Worth: 42.0

Country Of Citizenship: United States

Residence: Omaha, Nebraska, United States, North America

Industry: Investments

Marital Status: widowed, 3 children

University of Nebraska Lincoln, Bachelor of Arts / Science

Columbia University, Master of Science

Warren Buffett is the richest man in the world. Nicknamed the “Oracle of Omaha,” Buffett is renowned the world over for his Wall Street savvy and entrepreneurial management skills. Son of a Congressman and stockbroker father, Buffett sold newspapers as a child and re-sold bottles of Coca Cola to his boyhood pals for a profit. His business education paid off: eventually he became one of the largest stockholders of the soft drink company.

Buffett began learning about management and investing from his father long before his 10th birthday. At age 13, Buffett filed his first 1040 income tax form. He reportedly claimed as a deduction the $35 purchase of a bicycle to facilitate his paper route.

Buffett set up Buffett Partnership Limited, an investment management firm that he operated from his bedroom. It was when Buffett bought 49% in a failing textile manufacturing firm, Berkshire Hathaway, which he garnered working capital to invest toward unparalleled success in Wall Street. His self-described management style is that of “capital allocator.” Today, Berkshire is one of only seven companies in the nation that enjoys the AAA rating from Moody’s. It owns profitable subsidiaries including Fruit of the Loom, GEICO Direct Auto Insurance, See’s Candies, Borsheim’s Fine Jewelry, and more.

At Present

Buffett becomes the richest man in the world according to Forbes, dethroning Bill Gates, who held the title for several years.

Philanthropy

In June 2006, Buffett gave around 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately USD 30.7 billion as of June 23 2006) making it the largest charitable donation in history. The foundation will receive 5% of the total donation on an annualized basis each July, beginning in 2006. Buffett will also join the board of directors of the Gates Foundation, although he does not plan to be actively involved in the foundation’s investments.

He also announced plans to contribute additional Berkshire stock valued at approximately $6.7 billion to the Susan Thompson Buffett Foundation and to other foundations headed by his three children. The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004.

His children will not accede to a significant part of his wealth. These actions are consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next. Buffett once commented, “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing”

Quote by Warren Buffett

“I don’t have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It’s like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don’t do that though. I don’t use very many of those claim checks. There’s nothing material I want very much. And I’m going to give virtually all of those claim checks to charity when my wife and I die. “(Lowe 1997:165–166)

Top 10 strategies for fast profit

• Invest in Tax Liens

Buy liens placed on properties by municipalities because owners have fallen behind in paying their property taxes. Then, when the property owners pay what they owe to the municipalities, receive not only a return of your principal but also a penalty interest rate set by the municipality, typically in the range of 8% to 25%. If the property owner defaults altogether, take possession of the property for a fraction of its real value: the sum of the back taxes you’ve already advanced. You can then sell the property, even a bit below its market value, for a huge profit.

• Buy Real Estate Below Market Value

Identify real estate sellers who are willing to accept less than their property’s full market value for a variety of reasons. Then resell the property immediately at a profit, rehab it, rent it out, or even live in it yourself, all with the built-in financial cushion of having purchased the property for far less than it is truly worth.

• Invest in Income Trusts and Master Limited Partnerships

Earn high yields of 8% to 13% by investing in trusts that extract or transport natural resources such as oil, gas, coal, or timber. Such trusts pass a large amount of their earnings directly to investors through monthly dividends. Depending on the trust or MLP, some of the distributions may be considered a tax-free return of capital, boosting your after-tax return even more.

• Invest in High-Yield Stocks

Invest in stocks with stable businesses that pay dividend yields of 5% to 15% or more. Some industries offering such high yields include electric utilities, oil tankers, and real estate investment trusts, and several broad-based closed-end mutual funds. This is a way to make your capital compound with very little risk when you reinvest the dividends or to boost the income you live on if you take the dividends in cash.

• Enroll in Dividend Reinvestment Plans

Invest in companies that offer Dividend Reinvestment Plans, known as DRIPS, which allow you to use dividends to purchase shares directly and thus bypass brokerage fees. Automatically reinvest dividends back into further stock purchases, thereby compounding your portfolio’s assets over time. Several companies offer discount DRIPS, meaning that you get an additional 2% to 5% bonus every time you reinvest dividends, compounding your return even more at no additional cost to you. So if you get $100 in dividends, you receive $105 worth of stock when you enroll in a 5% discount DRIP.

• Use Put and Call Options

Rather than buying and selling actual stocks or stock indexes, you can, for a fraction of the cost, trade rights to buy and sell those stocks or stock indexes at specific prices within a specified period of time up to two years into the future. This form of leveraged trading allows for far greater gains but also runs the risk of far greater losses than normal stock investing. It is therefore imperative to follow careful strategies that limit risk while optimizing profits.

• Profit from Foreign Exchange Trading

Trade one currency against another currency, on the expectation that the currency you’ve bought will gain in value relative to the one you sold. This provides a convenient way to profit from the decline of the US dollar against most major foreign currencies.

Often, obvious mistakes are the ones most repeated in life. Investing doesn’t escape this paradox. People have short memories and history usually repeats itself in the financial world. Investing can be complicated if you have no experience with the basics of personal finance; however, you must start learning about investing now in order to plan for a brighter future. Avoiding the following top 10 investing mistakes will help everyone from the new investor who is just learning to an experienced investor who needs a refresher.

• Limit orders

One of the first mistakes one makes when investing is using limit orders instead of market orders. Limit orders set the exact price you pay for a stock or exchange-traded fund, while market orders are filled at the current price when you enter the trade. Long-term investors should only place market orders. If you are investing for 10 to 15 years or more you shouldn’t be worried about a few ticks within a matter of minutes.

• Margin

Using margin can be hazardous to your financial health. Margin is actually the amount of money your brokerage firm loans you to buy more securities — think of it like a credit card. You often get up to 50% of your portfolio’s value to borrow. The downside is paying interest and having a margin call if your balance falls below a certain point. Instead of using margin, save up the money before you invest.

• Magic product

If you have ever been up late watching television into the wee hours of the morning, then you have undoubtedly seen infomercials. They tout secrets of buying real estate with no money down and promise huge profits through options and futures. A recent television commercial actually interviewed a family and showed their kids getting in on the trading. However, the fact is that exotic investments like options and futures are highly complex and can be risky if you are a novice investor. The commercials might make this magic product seem like the best way to make fast money, but it’s a commercial and that’s precisely what it’s meant to do.

• Timing the market

Study after study has shown evidence that timing the market doesn’t work. However, every year thousands of people try to time the market only to end up disappointed. Timing the market involves making frequent trades in order to get in when the market goes up and get out when it goes down. The problem with this strategy is it’s almost impossible to predict the future. Instead of trying to beat the market, set up a sensible portfolio asset allocation and stick to it. Use dollar cost averaging by adding money to your positions when you can.

• Stock selection

Those who try timing the market and fail often venture over to stock selection. This involves choosing certain stocks you think will outperform a certain index. The trouble is that even professional money managers can’t do this consistently. You could throw darts at a board, but investing in the S&P 500 is a wiser choice. The S&P 500, known as the Standard and Poor’s 500, is an index of the largest 500 stocks in America. It is the most commonly quoted barometer of the U.S. economy and you can buy the index in an exchange-traded fund under symbol SPY or IVV.

• Not diversifying

The most important rule of investing is to be diversified. In other words: Don’t put all of your eggs in one basket. This rule seems simple enough, but it is easy to forget. At first, you might start out diversified, but then one position gets inflated and you might not rebalance. Don’t get caught up in the whirlwind of that new biotech stock either. With risk comes reward, but taking on too much risk with one company is just foolish.