Are you interested in investing in the Stock Market? If you worry that it is a risky business, you are probably right. However, who said that investments are for the softhearted and the wimpy?
Anyway, do not worry if you are ignorant about how to invest and trade. To understand the basics, let us look at all-time favorite investors of all times viz, Warren Buffet and George Soros.
In the fields of Stock Markets, some warriors stood their ground no matter how the markets went. These are those who beat the markets and live to inspire others.
Warren Buffett – The Oracle of Omaha
When you start investing, it is always good to begin at the feet of the wise. Warren Buffett has been known for his reserve and calculated investment style, which has earned him a fortune to be called one of the world’s wealthiest people.
Invest And Avoid Trading
Warren Buffet does not trade in the typical sense. He is a good investor who believes buying a stock should be like buying the company itself when you buy a stock. This means that you must be aware of the value of that company.
You must know what the company is doing inside out. You must know about the product the company is selling. His basic mantra is to Invest in what you know.
Find The True Value Of What You Invest In
Buffet determines companies’ true value by looking at their fundamentals. It is not hard for you too to check on how a company is performing, who is in the management and what their histories are.
Maybe you don’t have the resource to get materials and analyze them as Warren Buffet does, but you could do some basic research at least.
By going through many data and reports, Warren Buffet determines the true value of a company.
If the company was undervalued, he would buy it because he knows that the price will go up in time. This type of Value investment has brought in rich dividends to this 81-year old investor.
In addition, he does not jump the gun when markets go against the purchase. He stays calm and does not sell if the prices plummet and do not buy if the prices go up unreasonably.
Warren Buffet knows the company’s real price and knows well that the market will eventually correct to reflect the company’s true value.
Invest In What You Know
As stated above, he invests in business that he knows and can predict fairly well the prospects. This is one reason that he didn’t invest in the dot.com business and other technology companies. He had no clue about its business and was not able to calculate its true value.
That was not the case with Coca Cola. He knew exactly what the business was and did not find it hard to see a big future for the soft drink, especially in this globalized world.
Don’t Over Diversify
Warren Buffet never over diversifies his investments. He knows fairly well about the stocks he possesses, which do not usually exceed more than 10. If you have researched well and identifies the true value of the stocks, then why should you go around investing in many companies?
This might be unconventional, as you might have read that diversification is the basic rule in investing.
The basic thing against it is that if you over diversify, you would not profit when some companies make a huge killing. Your profits will be tied down by other companies which are facing a loss. By buying into companies from different sectors you are becoming the market itself.
How then, do you propose to beat the markets as Warren Buffet and most of his tribe do? Therefore, stick with a few stocks that you find to be undervalued.
However, diversification in low-risk financial instruments is not insufficient as long as you do not go overboard with it.
George Soros – Destroyer of Bank of England
Once you get the taste of investing from Warren Buffet let us go into the world of speculation and trading. There is a stark difference from the warm and reserved and calculated Buffet to the more aggressive and speculative type of George Soros.
George Soros is more of a trader than an investor with his interest mostly in bonds and currencies. He believes that markets are chaotic and traders fall for the herd mentality. His style is hard to pin down but some of his basic trading tips are good.
Go Ahead Of The Herd
George Soros was aware of the herd mentality in the markets and he used it to his advantage. He never was the person to be running along with the herd. He is known to move ahead of the herd and make the first killing.
His instincts were powerful and he could sense when a herd was about to move. He didn’t wait but act swiftly when an opportunity beckons.
Time To Reflect
Soros may be an arrogant trader, but his decision to hold or sell resulted from long reflection. He also consulted a few people who mattered and those who could give a good account of the situation. He also took time to reflect and think about the markets and what should be done.
Typical traders react by the moment but here is one of the world’s greatest traders reflecting and thinking before going in for the end.
George Soros spoke about his animal instincts which help him trade, but that instinct was strengthened by many hours of thinking and deliberations.
Taking Big Bets On Decisions
Once Soros was sure of a decision he never backed down and went all the way to profit from it.
On September 16, 1992, his most outstanding achievement was when he decided to sell $ 10 billion worth in Pound sterling by taking advantage of the Bank of England’s refusal to increase the interest rate.
This led to the fall in the value of the currency and Soros was able to profit around $ 1 billion on a single day. He was nicknamed the ‘Destroyer of Bank of England’ from that day onwards. His victory comes from betting huge on his decision.
Taking huge bets like that are unique to some traders like Soros, it is clearly not advisable for beginners.
Willing To Cut Loses
George Soros was the man who was always willing to cut losses when he took a wrong decision. This could be far different from what Warren Buffet does, but Soros is a trader and Buffet is an investor.
George Soros is putting money not because he thinks he needs to be own whatever he invests. He just wants to make money. Sometimes the decision will go wrong and he knows that he is wrong. He won’t hesitate to cut losses and call it a day.
George Soros believes that this business is a painful one and one needs to be ready to get bruised and wounded.
What stands out in Soros’ personality is that even though he is a trader he is a logical thinker. He never let emotions decide for him. He trades with reason by his side.
Most traders fall victim to their own emotions and take quick decisions based on nothing but feelings. Though Soros always works on hunches and instincts they are always backed by cold meticulous calculations.
These two investors are poles apart, yet they have worked out a fortune that few men can ever dream. Their common traits seem to be that they haven’t let emotions take the better of them while making investment decisions.
Their constant companions were reason and reflection. These qualities helped both men, even if the course they took were far and wide.
I tried to cover best tips of stock market and traders by giving an examples of two gurus who are expert in share market.
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