Warren Buffett’s 2 Rules in Investing
Warren Buffett has 2 rules in Investing.
Rule #1: Don’t lose money.
Rule #2: Refer to Rule #1.
Personally, I love these 2 rules because losing money is not only painful, but it decreases your chance of your financial dreams dramatically.
Imagine you started with $50,000. With the right rate of compounding of say 20% and when you let it compound long enough, you can reach $300,000 in 10 years, $500,000 in 13 years and even $1million in 17 years.
You realise that it takes 10 years to reach $300,000 but from there it only takes 3 years to reach half a million and only 7 years to reach a million. Compounding is very powerful.
But imagine did not invest wisely and you lose 40% of your capital. This means that you are left with 60% x $50000 = $30,000. You need to make back 67% to gain back your initial capital.
And if you lose 50% and end up with only $25,000. You need to make 100% of $25,000 to get back $50,000. This is easy to lose 50% but it is not easy to make 100% returns.
This is the reason why I really hate losing money and that is why I stick to studying every company before I invest into them.