Warren Buffet is one of the most popular and well-known figures in the investment world with many successful investors praising his philosophy on investment and the success behind it.
CNBC studied through archives of Warren Buffet, searching through transcripts of meetings by Berkshire Hathaway and reported three of his best investment rules and explained them in detail.
The first rule is as explained by CNBC is what is referred to as the “Circle of Competence”. At the 1999 Berkshire Hathaway Annual Meeting, Warren Buffet said: “Different people understand different businesses. And the important thing is to know which ones you do understand and when you’re operating within what I call your circle of competence.” Warren Buffet spoke of how important it is to focus investments based on knowledge, research, and expertise and if an investor is unsure or hesitant of a company, it probably is not.
The second rule, as CNBC says, is the importance of reading “The Intelligent Investor,” which Buffet says changed how he thought about investment after a series of unfortunate ones as a teenager. As CNBC reports, Warren Buffet, at the 2002 Berkshire Hathaway Annual Meeting said “Once you crank into your mental apparatus that you’re not looking at things that wiggle up and down on charts, or that people send you little missives on, you know, saying buy this because it’s going up next week, or it’s going to split, or the dividend’s going to get increased, or whatever, but instead you’re buying a business.”
The Margin Of Safety
The third rule is referred to as the “Margin of Safety” by Buffet.
By CNBC, Buffet said “On the margin of safety, which means, don’t try and drive a 9,800-pound truck over a bridge that says it’s, you know, capacity: 10,000 pounds. But go down the road a little bit and find one that says, capacity: 15,000 pounds,” at the 1996 Berkshire Hathaway Annual Meeting which he explained as analyzing the difference between figures to minimize loss should things go wrong.