Money Farmers

Rule no. 1: Never lose money.

Rule no. 2: Never forget rule number 1.

Let’s start with the basics! Why do we invest money in equity? If investing wasn’t meant to make profit, it wouldn’t make sense. Mr. Buffett doesn’t believe in formats and formulas for wealth creation; however, he only believes in investing smartly. He shares importance of sound knowledge and research while advising for long term investment. No one wants to lose money but very few want to know how to not lose money. The process of wealth creation in equity starts with a choice; wiser investors believe only in these rules of wealth creation.

Risk comes from not knowing what you are doing.

When you invest in equity, risk is inherent. Mr. Buffett, however, reinforces that you, as an investor must be aware of what you are doing. This is possible only with a sound knowledge. Buying businesses that you do not know of may lead you to be directionless. Rather, learn about the companies and their managements. Research is the basis of knowledge about companies you want to invest in. Understand how their business functions over the period of time and how does the company adapt to the situations. Buying stocks without knowing why you want to buy those stocks is a risk.

Be fearful when others are greedy. Be greedy when others are fearful.

Patience is value investor’s key identity. Mr. Buffett believes in buying more of quality stocks in the times of market corrections as the stocks with great quality may be available at a fair price. When others are greedy to buy stocks, the price of quality stocks may rise. That’s a point one should be fearful about, as the correct time of buying the correct stocks might be missed. Wiser investors prefer to stick to the quality stocks and hold them on for a longer time; instead they prefer buying more stocks during corrections.