How to Invest Like Billionaire Warren Buffett
In this post, you will learn about how you can think and Invest Like Billionaire Warren Buffett.
Video version of this post 🙂
The main goal is to study billionaires and how they think and then pass on the knowledge to you.
It is obvious that if you think like a billionaire then making a million in the market will be easy.
So you need to stretch your mind beyond the actual goal (millions) so that hitting the goal becomes a higher probability.
You know…shoot for the stars and if you miss, then at least you’ll land on a cloud. Versus being “stuck on the ground” looking up at those who you want to be like.
Got it? Good, now a quick story…
Somewhere in the world, there are two traders who wished they had bought the stock XYZ prior to it jumping up in price by 12% today.
Trader 1 was holding the stock XYZ since Jan of this year. He made a nice profit and then exited mid-March when it started falling in price. This poor soul is now crying the blues because if he had stayed in, he would have made a Rs 1 lac profit today.
Trader B did catch the 12% move and made a ton of money. However, it was a paper trade (facepalm). This poor soul is upset and wished it was a real money trade.
You may have compassion for both traders, but neither will succeed in the long run if they keep thinking that way.
Both Trader 1 and Trader 2 have a “profit bias”. They are upset because they missed out on “profit”.
But a billionaire (Warren Buffett) said this,
“Rule #1: Never lose money Rule #2: Don’t forget Rule #1.”
Notice…he didn’t say anything about maximizing returns and here is why…
It’s a counter-intuitive secret to financial success.
Billionaires focus on risk first, profits second. Notice they focus on both, not one or the other, and they put risk management first.
That makes sense…
After all, what puts people out of business, losing money or making money?
Have you ever heard anyone say, “I quit trading because I made a lot of money.”
Yet, making a lot of money is what people tend to focus on more.
They artfully weave between greed and fear…the greed of growing their new worth, but the fear of losing all of their money.
Off course Trader 1 and Trader 2 are upset as they missed out on the profit they could have made in stock XYZ and they wished that they were in the stock with real money. However the situation would have have been worse if it was a losing trade. Thats why having the right mindset is important.
A profit bias blinds you to this reality: Would you feel the same way if it was a losing trade? Would you be upset that you missed a losing trade?
When you focus intently on growing your account (making money) then losing money slowly becomes an after thought…
…something you don’t consider until it’s too late (you lose a lot of money quickly).
Now leave the story apart, here are some more tips for you.
Always be in risk control mode. If you would focus on preserving your capital, you will sooner or later make a fortune but if you’d try to go out an make a fortune, yo would go broke. You need capital to invest, without it nothing can be done.
Always choose a better risk reward trade even if it is making less sense than other trade where risk reward is unfavourable. Once you get in a trade, it is random. The only thing you need to take care of is that you don’t lose much when wrong.
Hope you learned from this and that you too will not have a “profit bias” before making your next trade with real money ?
Do share with your friends, family and relatives, after all Sharing is Caring.
Good Luck Investing ?