Warren Buffett, one of the world's most successful investors, has shared plenty of advice over his long career. But one piece of advice stands out as his top rule: “The first rule of investment is don't lose money.” And if you ask about the second rule?
Rule No.
1 is never lose money.
Rule 1: Never Lose Money
This might seem like a no-brainer because what investor sets out with the intention of losing their hard-earned cash? But, in fact, events can transpire that can cause an investor to forget this rule. Buffett thereby swears by Rule 2.
Many novice investors lose money chasing big returns. And that's why Buffett's first rule of investing is “don't lose money”. The thing is, if an investors makes a poor investment decision and the value of that asset — stock — goes down 50%, the investment has to go 100% up to get back to where it started.
It states that the monthly rent of a rental property should be at least 1% of the property's purchase price. While this can be achievable in certain areas, high-cost markets like San Francisco may not align with this rule due to high property values and lower rent prices.
A: Five rules drawn from Warren Buffett's wisdom for potentially building wealth include investing for the long term, staying informed, maintaining a competitive advantage, focusing on quality, and managing risk.
Don't lose money.
Buffett's most commonly cited financial advice is as follows, “Rule №1: Never lose money. Rule №2: Never forget rule №1.” So, before investing, determine whether you can lose the money you're investing in.
Buffett's Two Lists is a productivity, prioritisation and focusing approach where you write down your top 25 goals; circle your 5 highest priorities; then focus on those 5 while 'avoiding at all costs' doing anything on the remaining 20.
1. Spend less than you make. This may seem obvious, and boring, but spending less than you make is by far the biggest key to financial success. If you struggle with spending, focus on this one rule until you're at a point where you have positive cash flow at the end of the month.
Welcome to the Rule #1 Strategy, where we delve into the essence of successful investing through the principle of Rule #1: Avoid losing money. This foundational concept is akin to the Hippocratic oath in medicine, focusing on the importance of 'first do no harm.
Buffett follows the Benjamin Graham school of value investing which looks for securities with prices that are unjustifiably low based on their intrinsic worth. Buffett looks at companies as a whole rather than focusing on the supply-and-demand intricacies of the stock market.
Buffett's retirement strategy, known as the 90/10 strategy, involves allocating 90% of retirement funds to a low-cost S&P 500 index fund and the remaining 10% to low-risk short-term government bonds.
2.1 First Golden Rule: 'Buy what's worth owning forever'
This rule tells you that when you are selecting which stock to buy, you should think as if you will co-own the company forever.
Everyone has different financial needs, but here's a golden rule: Whatever percentage your employer is willing to match, try to take full advantage of it. Anything less, and you could be leaving money on the table. Additionally, if financially possible, you may want to max out your 401(k) year after year.
Despite being the sixth-richest person globally, Warren Buffett continues to drive a 2014 Cadillac XTS he purchased with hail damage. Although he can afford any luxury vehicle, Buffett prefers the practicality of his 10-year-old car.
“Price is what you pay; value is what you get.” Buffett is probably the most famous practitioner of value investing, which involves buying stocks at a discount to their intrinsic value.
The 90/10 rule in investing is a comment made by Warren Buffett regarding asset allocation. The rule stipulates investing 90% of one's investment capital toward low-cost stock-based index funds and the remainder 10% to short-term government bonds.
Trust a Low-Cost Index Fund for Your Portfolio
“Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund,” he wrote in his 2013 letter to Berkshire Hathaway shareholders. Buffett has given this advice for years.
In a 2017 Reddit Ask Me Anything post, Gates recounted how Buffett stayed at his house and had Oreos for breakfast. “He mostly eats hamburgers, ice cream, and Coke,” Gates wrote. “He may set a poor example for young people, but it's a diet that somehow works for him,” the Microsoft founder added.
Clear High-Interest Debt Possible As Soon As Possible
“I don't know how to make 18%, and if I owed any money at 18%, the first thing I'd do with any money I had would be to pay it off,” he said. “It's going to be way better than any investment idea.”
What is the $1 rule? The $1 rule is my spin on the age-old cost-per-use idea, specifically calling out a dollar as the benchmark. Before buying an item, figure out how many times you'll use it. If it breaks down to $1 or less per use, I give myself the green light to buy it.
Here's the punchline: If you get one percent better each day for one year, you'll end up thirty-seven times better by the time you're done. This is why small choices don't make much of a difference at the time, but add up over the long-term.
One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk (Table 1). For example, if you are trading a $50,000 account, and you choose a risk management stop loss of 2%, you could risk up to $1,000 on any given trade.