Part 4: Buy your stocks like you would buy your house

Limited stocks

Act like you can only buy ten stocks in your entire life.” That’s how the world’s best investor, Warren Buffett, illustrates how important educating yourself is. First, by doing your homework, then to buy what you know and finally to hold on for a long time.



Let us do a small recap of the previous parts before we continue with this next one:

  1. Don’t get caught by all the noise in the market or stock exchange
  2. Over the longer term, shares offer a better return on investment
  3. As a shareholder, you create capital with which “your” company can invest to achieve a very sustainable profit over the long term.
  4. Does the venture fail, you share the blows, is the company successful, you reap the benefits

Given above points, which are the stocks are most likely to return you a profit? How do you choose stocks from thousands of listed companies across the various stock exchanges of the world?

Do you plan on taking up multinationals or only tech start-ups? Is it even possible to get a grasp on the different sectors of the world?

Keep calm and carry on reading: you can take your time before you decide on which stocks to by. In the coming parts, through objective arguments, you’ll recognize that it’s rewarding to take your time instead of jumping in head first.

Those who see investing in stocks as a get-in-quick and get-out-fast, cannot attain sustainable returns.

Just like buying a house

When you look to invest in stocks, it’s best to handle it as if you were buying a car or -better still- a house. Everyone has clear desires, criteria, and wishes with real estate. You inform yourself extensively and consult with experts and your partner.

You wouldn’t dream of buying a house without having visited the house in question, and if possible, twice or thrice. In effect, don’t buy a share if you don’t know what the company does or if you don’t know the products, nor who the major shareholders are.

A long-time family-owned company is easy to estimate and they guide it in a more cautious manner than a company that is the plaything of short-term speculators.

Why are most people happy with their house without it being a financial disaster? Simple, thanks to a combination of two factors:

  • A thorough approach
  • Years of disciplined payment.

If you work like that with shares, you’ll do well in the long run.

As such, it’s paramount to distance yourself from the daily stock woes. It’s not easy to do because people think that these rates are always rational. If the price of your house collapsed on the stock market, you would be shocked as well, even if you knew that there was nothing to be worried about. The better you know your stock, the better you are able to come with the daily stock market craze.

Over choice 1https://en.wikipedia.org/wiki/Overchoice

Which shares should you investigate first? Choice stress can arise if your decision gets dictated by bad advisers who respond to fear of risk. These type of advisors are first to talk you into a supposed safe global investment. That is unnecessary.

An obvious definition can be to start with stocks from your country’s own major stock exchange. While they form only a small part of the world’s available stocks, these stocks have a global presence. Above all, this way you can practice what the world’s most successful investors preach, invest in what you know and understand.

Choosing stocks from your own countries goes beyond numbers and debts. This is about culture and trust. You must believe in the company’s strategy, its qualities, and the sincerity of the management and shareholders.

It’s much more difficult to estimate a foreign company than it is your country’s own company that is rooted there.

Going to general shareholder meetings where you can see and hear the CEO, gives you insights and a sense that even the best advisor, analyst or journalist can never offer.


Remember

  • Do not buy a stock if you do not know what the company does or if you don’t know its products.
  • It seems obvious but start with stocks from your countries stock exchange, i.e., if you are from the UK, look at stocks listed on the London Stock Exchange or LSE for short.
  • A family-led company, most of the time, is lead with caution.

Now you have the basics down on how to buy a stock, it’s time to learn how to pick them correctly. Continue to  the next part: “Wanted: a company build lke a stronghold”.

References   [ + ]

1. https://en.wikipedia.org/wiki/Overchoice