How Warren Buffett Picks Stocks: 3 Winning Tips
Warren Buffett is often considered one of the world’s greatest investors. The irony, of course, is that what sets him apart isn’t necessarily any particular knowledge. He doesn’t have anything profound to say about the economy, economics, or any related fields, such as statistical analysis or mathematics. What he has is an arsenal of simple principles and the discipline to follow them. As a result, he has become one of the world’s wealthiest individuals.
In what follows, I outline a couple of his principles. By the end, it should become clear why he is so successful and how you can be, as well.
1. Invest within your circle of competence
Investors think that they can outsmart the market by finding the next big thing. Whether it’s social media, 3-D printing, or rare earth metals, it is incredible how a few news stories and stock price increases can create an entire group of people devoted to a particular sector of the economy. But at the same time, these people probably don’t know much about these sectors. Do retail investors honestly know how a 3-D printer work, or how a computer chip works? Probably not. But that doesn’t stop them from buying 3D Systems (NYSE:DDD) or Intel (NASDAQ:INTC). While they may make money, they won’t do so because they understand their investments.