Buffett’s rule keeps one’s feet on mother earth. He says, “The stock market is a device for transferring money from the impatient to the patient.” Instead of chasing 50 stocks, pick a few that are fundamentally strong with solid management pedigree. The idea is not to punch above or below your weight. Like Buffett’s partner Munger would growl, “Do not be stupid. Pick what you know.”
How to Punch Like Buffett
The biggest question is – How do you choose your 20? Buffett’s rule is a mindset, not a math problem. But both Buffett and Munger loved checklists, so here is one for India:
- Know Your Circle of competence: Invest ONLY in what you understand. Stick to what Buffett said, “Risk comes from not knowing what you’re doing.” If you cannot explain why a software firm wins or a tech startup loses, skip it. Stick to stocks you know and understand. May be a bank or a FMCG stock. It could be anything. But you must know it well, and understand the business deeply.
- Find Moats: Buy companies with strong edges; brands in everyday products, market leaders in cars, or cost champs in telecom. Get the idea? Buffett loves moats: “In business, I look for economic castles protected by unbreachable moats.” Is what he had profoundly quoted once.
- Buy Cheap: Never overpay. Buffett never did himself. If a company’s price-to-earnings ratio is 70, wait. Buffett says, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
- Think Long Term: Will this company shine in 2045? A strong lender, with 20% growth, might. A shaky startup? Less likely. “Our favourite holding period is forever,” Buffett insists.
- Patience, Kid: Do not punch just to act. There is no mandate to do that. Take your time to find the good ones, and when you do, be patient with them. Buffett has held stock for decades. No wonder he once said, “The big money is not in the buying or selling but in sitting.”
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