Warren Buffett
Many stock market investors look up to Warren Buffet as their “guru”, but if you listen to him closely, he’s basically telling you not to invest in stocks.
Warren Buffett’s rule #1 of investing is “Don’t Lose Money.”
Rule #2 is “Don’t forget rule #1.”
Retail Stocks Don’t Qualify
What he means by that is: don’t invest in anything that can go down in value.
By that definition, almost all stocks are ruled out. By contrast, Warren Buffett wants you to buy assets at wholesale, not at retail prices. That means picking up property or companies at 50 cents on the dollar.
When you buy stocks online, you are, by definition, paying market value for the stocks. The only way to get a company at wholesale is to buy the whole thing like Warren Buffett.
Wholesale Real Estate
Since most people can’t afford an entire company, the next best thing is a piece of real estate.
We buy $100k properties for $50k and fix them up. We are never in to a property for more than 70% of the after repair value. That way, we are protected against a downturn in the market.
Don’t Lose Money!
The hardest thing in investing is recovering from a loss. It takes a 100% gain to recover from a 50% loss. So don’t lose money!
Hi Brian! It’s me again! I’m so enjoying your blog and the tips that you have shared! Again, I do believe in Warren Buffett’s rule! I am a strong believer and practitioner of this. I think you really can’t call something an investment if you are continuously losing money over it. Am I right?
Awesome vid…I’d like to find commodities below market value such as futures on pork belly or orange juice. Is there any efficient way to find things below market value?
“Don’t invest in anything that can go down in value. By that definition, almost all stocks are ruled out.”
I think your a little confused on this. Buffet is a stock investor after all it’s how he made his fortunes. Let me help. You’re confusing value with price.
For example, when has Microsoft ever gone down in value? What about Netflix, Exxon, Dell, Walmart, and the list can go on. Sure, sometimes companies do lose their value GM, Lehman Bros, etc.
A good business manager should be able to run his business so it doesn’t decline in value.
Meanwhile, the price of anything can drop – real estate, commodities, stocks, etc.. The difference between stocks is that the manager actually has the ability to control those drops by doing a good job. Real estate and commodities while great investments are at the fickle nature of the market through supply and demand. For example, gold can’t stop being gold and become silver if supply demand changes. A piece of property can’t change from a house into a shopping mall on it’s own. But a company like Netflix can change from a DVD delivery business to a online HD movie and TV streaming company. Therefore, controlling it’s value!
Stock prices rise and drop in unpredicatable fashions. The key is to know how to value of that stock. Buy it when it drops below the value with enough margin of safety and sell it when price goes over it’s value. What Warren Buffet was saying, was that not losing money is knowing what price you pay for something versus the value for that item.
This is just much easier to do with business and retail stocks then anything else. This is why Buffet is a stock investor and one of the richest people in the world.
I’m sorry… I must not be expressing myself very clearly.
Yes, the price of anything can drop… That is the exact reason why we never pay the retail price for an asset. I don’t care if it’s real estate, or a stock, or a television set, I never pay the market price. I’m always at 50-70% of the market. That protects me from downside swings.
If you want to do it with stocks… you just have to buy the whole company for 50% of the stock price.
Would you consider writing a blog about rehab of properties? How much it costs, how to maximize your ROI, do you sell out the work or do it yourself? Too many questions about this aspect of real estate investing.
Good suggestion. I’ll work on one.
your post remind me something..
if you want to earn, 1st, don lose!
Thanks.
I love your sharing, simple but meaningful.
Very interesting. Just looking to get into investing myself. Are you saying that the only way to get assets below market value is through property? Is this not posssible to do reliably with shares also?
It’s not the only way, just the most accessible to the masses. Dividend Growth Investor claims that he knows a way to do it with shares. You could also buy whole companies, websites, or merchandise at wholesale. There are probably thousands of ways we haven’t thought of yet… but, in my experience, property is the easiest.
Interesting post. You could actually purchase stocks at deep discounts to their worth. That’s what the young Buffett was doing before he had tens of billions to manage. A friend of mine who is a value investor recently uncovered such a company:
http://www.thediv-net.com/2010/08/business-selling-for-free.html
He has also uncovered many other companies like that on his site barelkarsan.com.
I like that… I guess when you have the mindset you can do it in any asset class.
Great information and perspective Brian. One exception to consider is to buy stock in Berkshire Hathaway. I doubt Warren Buffet would be against that.
I’m sure he would want you to invest in his stock at market value, but it would be going against the spirit of his 1st rule of investing.
I enjoyed your vid. Keep it coming. And I like your blog in general. Very useful.
Hey, thanks!
Wholesale real estate purchasing is an excellent method for purchasing and making a profit with real estate. Not too many people know about this. Excellent and informative post.
Many banks are willing to negotiate now (some are still stubborn) and having a good contact at a lender will help find you some great deals in the wholesale market. REITs also have some good deals for investing in real estate.
Great points. If you’re creative, there’s always a way!