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7 Principles Of Investing By Warren Buffet

By Finserv MARKETS - Aug 21,2019
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ULIP Investment Principles

Warren Buffett has long been admired for his philanthropic activities, but his business acumen is really what sets him apart. The 88-year old American billionaire, who is among the richest men in the world, has a net worth of USD 89.9 billion and serves as the Chairman and CEO of Berkshire Hathaway. He has been quoted referring to “super investors” who made millions of dollars following the investment principles taught by renowned economists Benjamin Graham and David Dodd, but he tweaked the principles along the way with his own strategies and achieved a whole new level of success.

Investment instruments and the manner of investing for achieving high returns have evolved over the years, depending on economic factors, market conditions and people’s preferences. In India, unit linked insurance plans are emerging as the new investment vehicle of choice owing to their ability to act both as an insurance cover and an investment plan. The Bajaj Allianz Future Gain ULIP, available on Bajaj Finserv MARKETS, is a long-term wealth creation tool that offers a maturity age of 70 years and has premiums starting for as little as Rs. 2,500.

Scroll below to learn more about Buffett’s principles of investing and how they can set you on the right path to making your first million.

1.“Think like an owner”

Buffett’s trademark formula was that if you are about to invest in a company by buying its shares, first ask yourself if this is a business that you would have wanted to own. His own company, Berkshire Hathaway, often buys out other companies outright instead of investing in them but the mindset remains the same.

2.“Understand the business”

While Buffett himself practices investments that remain within his circle of competence, he does not advice against investing in industries where you might not have prior knowledge. Instead, he advises conducting thorough research into the business, its strategies, its operations, its revenue model and learning everything about it before you invest in it. Buffett further advises not to rely on anybody else’s knowledge, but to personally take the time and learn about the business yourself.

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3.“Find companies with moats”

Medieval castles had moats filled with water encircling them which helped fend off attackers. Buffet compares these to companies that have a competitive advantage, which helps them reign supreme in the market. Buffett counsels investing in companies that have this competitive edge over competitors, since it protects them against market challenges and makes them a secure investment. This philosophy was well demonstrated by Berkshire Hathaway’s investment into Costco, a retail chain, which is triumphing in the retail market owing to its low cost and membership model which is attracting customers by the dozen. Costco’s operational methods have been well documented as a case study of a modern retail chain which is able to keep its product costs extremely low.

4.“Buy at a fair price”

Buffett’s famous Rule Number 1 of investing is to “never lose money”. He did this by not paying too much for a stock while buying it. While he started off as an investor looking for bargain buys, his views modified over time and he said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. Bajaj Allianz ULIPs, available on Finserv MARKETS, is a good instance of buying at a fair price.

5.“When it rains gold, put out the bucket and not the thimble”

One of Buffett’s timeless pearls of wisdom is to take full advantage of great opportunities. His approach towards investing was to invest when fear in the market caused the valuations of great companies to drop, allowing for him to buy a significant share of the company at a reasonably low rate. He further advised, “Be fearful when others are greedy and greedy when others are fearful”.

6.“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”

While it is a cliché now, Buffett was one of the first investors to advise a long-term perspective while investing. An individual investor’s greatest advantage is patience, and Buffett said that only a patient investor could beat the market in the long run.

7.“Sell when the business loses its edge”

While Buffett does consider long-term perspectives to be an essential factor while investing in a business, he also understands that businesses don’t always perform as expected and suggests cutting losses as quickly as possible after you have identified and admitted to your mistakes. Buffett himself sold off IBM stock after admitting that he had underestimated the enormous competition faced by the tech giant. With the best unit linked insurance plan in India, you get a five year lock-in period, post which you can opt for partial withdrawals. The Bajaj Allianz Future Gain ULIP also allows you to switch between funds at any time, at no additional cost at all.

While Buffett is an icon many of us might want to be, his acute sense of business and investing is definitely something each of us can learn from, time and again. Bajaj Allianz ULIPs, available on Finserv MARKETS, are the best way for many of us to venture into the world of investing.

Also read in detail about the ULIP tax benefits you can avail with plans available on Finserv Markets.

To know more on ULIP investments in depth, you can check out these blogs:

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