Warren Buffett's 5 Golden Rules: Your Blueprint to Investment Success (2024)

FAQs

What are the 5 golden rules of investing? ›

Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are.”

Billionaire investor Warren Buffett famously said: “The first rule of an investment is don't lose money. And the second rule is don't forget the first rule.” Being honest, I've never quite got it. Anybody who buys individual stocks surely has to accept they'll lose money at some point.

The 5% rule says as an investor, you should not invest more than 5% of your total portfolio in any one option alone. This simple technique will ensure you have a balanced portfolio.

1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money.

Buffett on how to invest his wife's inheritance after he dies — and it's not Berkshire Hathaway. Buffett said he revises his will every three years, and he still advises his wife to allocate 10% of her inheritance to short-term government bonds and 90% to a low-cost S&P 500 index fund.

Warren stays away from technology companies because he likes investments in which he can predict winners a decade in advance—an almost impossible feat when it comes to technology. Unfortunately for Warren, the world of technology knows no boundaries.

Buffett presented a three-step exercise to help streamline his focus. The first step was to write down his top 25 career goals. In the second step, Buffett told Flint to identify his top five goals from the list. In the final step, Flint had two lists: the top five goals (List A) and the remaining 20 (List B).

Unlike many top billionaires, Buffett has modeled his investment strategy off Benjamin Graham's method of value investing. In other words, he finds and invests in stocks or securities that are priced far lower than their intrinsic value and holds them for the long term.

What is an example of Warren Buffett 25 5 rule? ›

The rule's origin is reported as advice given by Buffet to his personal pilot, Mike Flint. Flint asked Buffet for career advice, leading to Buffet thinking of the 5/25 rule. Buffet asked Flint to list his top 25 career goals, pick the top five, and avoid the rest until the top five are achieved.

The 7% stop loss rule is a rule of thumb to place a stop loss order at about 7% or 8% below the buy order for any new position. If the asset price falls by more than 7%, the stop-loss order automatically executes and liquidates the traders' position.

Still living in the house he bought in the 1950s and driving an equally modest car, the "Oracle of Omaha" prefers to keep and grow his money rather than take it out of the bank. He often eats breakfast from McDonald's and borrowed furniture when his children were born.

Value investors often make decisions similar to what Ben Graham did, based on the business looking cheap, but Rule One investors know that it is better to buy a wonderful business at a fair price than a fair business at a wonderful price.

It is a simple rule that answers the following questions. What will be my thoughts 10 minutes later about the decisions that I make now? What will they be ten months later? And what will they be ten years later?

The 10-5-3 rule can be used as a general principle for diversifying your investment portfolio. It suggests that 10% of your portfolio should be allocated to high-risk, high-reward investments, 5% to medium-risk investments, and 3% to low-risk investments.