Know The Company, Not The Stock

Not Everybody Loses Money In Stock Market

How many times have you heard the stories of people who lost their last penny in the stock market? Quite often, I am sure. There are many people, who have never dealt in stock market but somehow have made up their minds that it is not the place for them. The primary reason is people are afraid of taking risk.

The Risk Factor

There is no denying the fact that investment in capital market carries its share of risk, but at the same time there are methods which work quite effectively to minimise the risk. Long term investment in a good stock is one way to counter market risk. Let’s check out Warren Buffett’s views on risk.

Risk Comes From Not Knowing What You Are Doing – Warren Buffett

Warren Buffett has the knack of saying a lot in the least possible words. The above mentioned quote gives you a glimpse of Mr. Buffetts investment philosophy. It’s well known that Warren Buffett is not a man who you go to for things like ‘Tip of the day’ or ‘Stock of the day’ as he firmly believes in investment on the long term basis.

Now imagine if you are going to invest in any company for a long period of time would you just put your money on the line without doing a thorough research of the company? Never. A responsible investor always checks the details like product of the company, its performance and all the other details which affect the revenue of the company. And when you know what you are doing you eliminate the risk factor to a large extent, if not totally neutralise it.

So there you are, if you know what you are doing there is no risk whatsoever.

Demystifying Warren Buffetts Philosophy

There is another way of looking at Warren Buffett’s quote on risk. In stock market the term ‘Herd mentality’ is very prevalent. Investors who set short term goals tend to skip the critical stage of research as they blindly follow the tips given by the brokers or friends. It sets a very bad president as nobody knows what he has invested in and is relying on the reliability of the source. Such schemes are bound to fail as it is like a ship without a compass and it won’t reach anywhere.

Know The Company…

Warren Buffett calls himself technologically challenged. He doesn’t understand the products of the big software companies and startups hence he doesnt invest in IT sector. Not only does this method simplify your investment strategy but it adds immense value to your portfolio.

Keep it simple – invest only in the companies about which you know everything.