Warren Buffet, the third-richest man in the world with a net worth of Kenya Shillings 8 Trillion (76. 1 Billion US dollars) is one of the best investors in the stock market today. In one of his interviews, Buffet revealed that he thinks he is good at investing because he spends most of the time analyzing financial statements of different companies and studying the market.
Most of us lose our investments in the stock market because we rely on brokers who only want to make their profits. Few people dig deep into financial books or investing books before they invest in the stock market.
Warren Buffet also confirms that he got his investing skills from Benjamin Graham one of the best investors in the stock market and also the author of The Intelligent Investor, which is one of the most reliable books on investing. Warren Buffet learned the following investment secrets from Benjamin Graham: –
Benjamin Graham believed that at any time an investor can profit from the stock market because there are always optimistic and pessimistic people in the market. Therefore, a wise investor buys stock from pessimists because they sell their investments for a low price and sells these investments to optimists at a high price because they believe that the market price will go up.
Stocks are not always profitable if their prices rise because when prices are steadily rising, they might go up till the only direction they will have to go will be down.
Invest in firms with a high Return on Capital Employed (R.O.C.E) and Low Debt. The R.O.C.E refers to how a company converts its capital to profits. A high R.O.C.E, therefore, means that the firm is good at utilizing its capital to make profits.
R.O.C.E = Profit Before Interest and Tax/ Debt + Equity
Invest in firms with predictable earnings. These are companies that have been making profits for a long time, and a critical analysis of its industry and the business itself reveal that the firm will continue making profits for a long time.
Invest in companies whereby the cash flow is in line with operating profits. Do not invest in businesses with higher profits and poor cash flow or those with weak cash flows and higher profits. Both cash flows and profits are necessary for ensuring that your share’s price or dividend will rise.
Invest in businesses that have products that you understand or firms that operate in markets that you comprehend. Investing in such companies ensures that you minimize the risk associated with bankruptcy because you will know how the company is likely to perform today or in future.
The above strategies are helpful for people who want to make money in the stock market. However, they do not fully guarantee that you will succeed, but they will surely prevent you from making poor investment decisions. The investing methods also reveal that a successful investor needs to be always studying industries and the stock market. Most people fail in this market because they place their money on broker’s hands. Nothing comes easy, for you to gain from stock market you just have to find time to study carefully and do not give up when you still fail to make your desired profits cause eventually you will win.
Life pays you at the end of the journey, not in the near beginning. I will persist until I succeed.
Wanjohi Dennis is an independent blogger and Internet Marketer who is versed with global matters and trends as well as the current business affairs. He can be reached on firstname.lastname@example.org or on twitter: @deniswanjohi4