Naturally, you would consider the world’s most expensive companies, such as Amazon or Apple.
Believe it or not, this company is twice the size of Apple, but its stock price is many times higher.
It’s almost certainly more expensive than your mortgage.
In fact, you would have to save every penny you earned for six years in order to purchase this stock. To put it another way, if you want to invest with Warren Buffet, you should have at least 322 200 dollars to purchase a single stock.
That is not surprising given that the stock price has increased by nearly 8,000% since the company’s inception. If you had invested a thousand dollars in Berkshire Hathaway back then, you would have made around ten million dollars by 2014. We can’t go back in time and invest in this company, but we can learn how to invest like him.
The first rule is to never lose money!
I know it sounds absurd, as if Buffett is mocking us, but there are logical reasons why most people lose money in the stock market, and your job is simply to avoid these traps by understanding the rules of the game that many investors ignore.
When you look at the companies that are traded in the market, they have a price tag, but because no one can afford that, including you, they are broken down into many many stocks, but the key question here is, is this company really worth 925 billion dollars?
No, it does not.
As you can see, there is a significant difference between price and value.
The stock price fluctuates on a daily basis, and even minor negative news, which may or may not be false, can cause the price to fall. However, the value remains constant, because the value is what the company is truly worth.
For example, Apple released the iPhone XR at the end of 2018, and sales were lower than expected. As a result, Apple received a lot of negative press, which drove the stock price down from 230 dollars to 160 dollars in three months. That’s a massive leap!
But did the company lose 30 or 40% of its value in such a short period of time?
Of course not, even though iPhone sales were down, the company made more money than the previous year! That’s why the stock price has returned to more than $200.
When the entire world was talking about how Warren Buffet lost billions of dollars because he invested in Apple, he couldn’t care less.
He even desired for the stock to fall further so that he could purchase more of it. Because he understands the distinction between value and cost. Indeed, He once stated, “Risk comes from not knowing what you’re doing.”
In other words, Warren dislikes taking risks because he knows you might lose money if you do, which violates his first investing rule: Never lose money.
Invests in clearly undervalued businesses.
Of course, you can’t completely eliminate the risk, but you can reduce it to the absolute bare minimum.
In 2002, Buffett came across a company called PetroChina. After reviewing its financial statements, it was clear that this company was worth around a hundred billion dollars, but when he looked at its stock price, the company was only valued at 30 billion dollars, he recognised that it was a golden opportunity. and, based on the political climate, Buffett predicted that oil prices would either rise or remain stable.
As a result, he invested nearly $500 million in this company (488M). Guess what happened, with the rise in oil prices, the company’s valuation skyrocketed to 275 billion dollars, not 100 billion dollars as Buffet predicted. Buffet profited 3.6 billion dollars from the sale of his stake. Isn’t that good?
Rule number two: Never forget rule number one!
I know it sounds ridiculous, but if you look at any company in which Buffett has invested, you will notice that he has followed the exact same philosophy!
I believe it works because it has made him the world’s richest investor!
So, best of luck!