Great investors surely have investing secrets that they use to build
wealth, but they are open secrets. Anyone can find out what the greats
do and copy them to have success in wealth creation. And many of the
so-called secrets are simply common sense principles.
For instance, investing in a company with consistent earnings is the
sensible thing to do and one that has helped Warren Buffet earn his
millions. Taking care to invest in old and well-established companies
is another. Many investors run into trouble by jumping on the bandwagon
of some new company that sparkles for a while then quickly dies out
leaving a pile of rubble rather than money.
Another common sense principle that is applied to both real estate and
shares by the great investors is to never pay too much for an
investment. Generally the more you pay, the less you get back as many
real estate investors have found out to their cost. Warren Buffet also
believes in concentration rather than diversification. When he buys a
company he typically buys around 80%, and keeps it.
Another secret investment principle Buffet favours that has helped him
with his wealth creation is to buy companies with experienced managers
and keep them on to do what they do best - run the company. Buffet
rarely interferes with the running of the companies he buys. He simply
compliments the managers on the job they are doing.
Buffet’s talent is to see where good
investments are and buy them, not run the company.
Checking out the management philosophy of a successful business is
another secret. Knowing that the manager cares more about the company
than the price it brings has worked for Buffet. He studies the
character of the company managers before making a decision to buy the
company.
Finding a company whose manager is frugal and cares about costs is an
important secret of great investors. They know that one way to build
wealth is to spend less and managers who run a consistently tight ship
are the successful ones.
While some investors feel that a younger manager will enhance a
company’s ability to move with the times
and make more money, Buffet prefers to retain the successful manager
well past the legal retiring age. He considers that experience is the
key word when it comes to managers. Setting high standards and keeping
them may seem unnecessary to many, but it has seen many great investors
build wealth where others fail. We would do well to take on board some
of these secrets for ourselves.
