Investing Tips From Business Pundit, Warren Buffett
If we look closely into the lives of rich and famous businessmen, we will find that most of these people are not only highly disciplined in their professional lives but in their personal lives, too. Often, they follow principles and stand by them all the time which brings them success. Billionaire investor, Warren Buffett, is considered to be one of the wisest people around when it comes to business, business management, and lets just say, any and all things business related. Not only does he stick by his rules, but he also believes in simple living and high thinking, thereby letting go of luxury and living life modestly instead. For years, investors have been trying to follow in his wake and get huge returns by investing right! Investing in startups can be quite different from other kinds of investments, and following a fixed rule might be quite challenging at times. But here are some basic tips right from the mouth of an expert whose credibility cannot be questioned – Warren Buffett himself.
Find Companies With Simple Business Models
If you look at Buffett’s portfolio, you will find that he likes to invest in companies that follow a simple business model compared to ones with complicated ones. You will find companies like Walmart, Coca-Cola, and Exxon who have an easy and simple business model. Incidentally, angel investors also follow this rule of Buffett’s. It has been proved that following this can give a boost to their ROI in startup investing. It was also found that when angel investors invested in a known industry, the investment multiples were twice as high. Aside from Buffett, several other experts in the field use the same philosophy before taking the plunge and investing. Peter Lynch of Magellan Fund also believes in it and encourages everyone to do the same, reiterating that your money will be better off in a field that you are familiar with. Basically, when you understand one particular industry, you tend to know what you are getting into and also differentiate between the run-of-the-mill and the extraordinaire! For beginners in investing, this is a golden rule as it helps them understand how the business works and hence how they will be making a profit.
Teamwork Is The Key To Success
Well, isn’t that true for most businesses? Yes, teamwork is the key to success for businesses, but when you want to invest in a business, how do you find out if they have a stellar team? According to Buffett and some other experts from the industry, there are a few factors that might help you determine if a company has a great management team or not. For example, if the average return on equity of a company is at least 15% for 10 years, it would show that the management team of the company has been doing great financially. This is a metric that Buffett uses according to John P. Resse in his book The Guru Investor. Buffett also prefers investing in serial entrepreneurs. It has been found that even if you fail at times, experienced entrepreneurs are more prone to success than beginners.
Trust In Companies Who Make Recurring Revenue
It goes without saying that it is better to trust companies who are already earning annual revenue. Since this is a measurable metric, it plays a big role when finding startups to invest in. Companies that are earning well and are predicted to do even better are sure to win the trust of investors easily. If you delve deeper, you will find that most companies that sell some product or cater to a huge market, where the demand is good, have more chances of getting recurring revenue than others. A good example would be the time when Buffett bought stocks worth $600 million of Gillette – the razor company back in 1989. Since the product is always in demand, eventually the company was bought by Procter & Gamble in 2005, and Buffett’s stocks were worth $4 billion by that time. Looking for startups that are selling software as a service (SaaS) and earning monthly revenue might be a good idea. Basically, a good business plan that shows exactly how the startup is planning to make a profit or earn regularly is something investors should be looking at.
These are, of course, the basic rules, and for each industry, there might be some other factors to consider and analyze. Just make sure that you can measure the metrics and can predict the future confidently, and of course, follow Buffett’s tips!
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