Monday, February 4, 2013

Stock Investment Advice from Greatest Investors

If you are just beginning your foray into the world of the stock market, then you have probably heard many different opinions regarding stock investment advice or learn more about Stock Market Quotes . This isn’t a bad thing; ultimately, you should listen to many different philosophies and decide which one makes the most sense to you. One set of ideas you should consider come from some of the wealthiest investors of all time. Warren Buffett and Charlie Munger are the Chairman and Vice-Chairman of the Berkshire Hathaway board. They describe their investment philosophy as 4 simple ideas. Let’s take a look at them.

1. Stay Within Your Circle of Competence
Buffett says that you should only buy stocks of companies that you can understand. You should be able to understand the business model and how they make their money. More importantly, you should be able to see what the business will look like 10 or 20 years in the future. This is why Buffett likes companies like Coca-cola and Gillette: he knows that in 20 years people will still be shaving and drinking Coke. He won’t invest in companies like Google or Apple. It’s not that he doesn’t understand them or think that they aren’t great businesses; it’s that he has no idea what the competition and business landscape will look like in 20 years.
2. Durable Competitive Advantage
The second factor that goes into choosing a great stock is to find a company that has business characteristics that give it a durable competitive advantage. This is something that makes it very hard for competitors to enter the same market and begin stealing customers from them. Good competitive advantages can include a great brand that people trust, a reputation for low prices, or a talented innovate team.

3. Good Management
Buffett and Munger want a great management team to run their businesses. They aren’t really concerned about whether the management all have high IQs or a lot of business degrees. They look for people who are honest and have a lot of integrity. A quick method of analyzing the character of a CEO is to ask yourself if he is the kind of man you would like your sister or daughter to marry.
4. The Right Price
No matter how good a business is, its stock isn’t worth an infinite price. You must come up with a fair price that a rational person would be willing to pay for the entire business. Then you can check to see what it is trading for on the stock market. Checking the price is the very last thing that Buffett and Munger do.
If you keep in mind these four keys to investing, you can prevent getting caught up in the latest stock market fad or getting misled by a bunch of numbers running across your television screen. For the best stock investment advice, stick to the fundamentals and to the most successful investors of all time.