IF YOU UNDERSTAND AN IDEA..


Investing & Money
piece written on the 13th August 2014 by  

..you can express it so others can understand it.

Warren Buffet is a mastermind when it comes to investing and trading, very few people can compete with him. Value investing and patience are the two main principles that have led to Warren Buffett’s immense wealth of $65.1 billion. Forbes published an article saying that he made $500 million just yesterday alone! Now I understand that the amount relative to his wealth isn’t vast, but I mean, $500 million in a day! And sure, he probably floats up and down $500 million all the time, but let’s just appreciate the win for a moment.

In the quote, “If you understand an idea, you can express it so others can understand it”, this is Warren’s way of testing whether he really understands a business before investing in it. If he can’t explain it, he doesn’t really understand it. He will not invest in a business he doesn’t understand – nor should you. In the struggle to be able to express an idea, you must acquire a fair degree of understanding, which is a good thing if it is an investment idea. This standard requires that you do your research before you buy the stock. Warren’s rule is simple: Can’t explain it – stay away from it.

This quote and the explanation ring true for many things in life, not only investing and that’s why I love it. I enjoy my share trading but I also love business in general and this quote rings clearly in my mind whenever I’m thinking of pursuing something. If I don’t understand something in great deal, how would I ever pitch it to someone. It’s a rare thing to get buy in when you can’t have the other person or company truly understanding what it is they’re going to be buying into.

If you’re someone who is interested in investing and would like to know more about Warren Buffet and the way he goes about it, I’d recommend The Tao of Warren Buffet. It’s a short book that lists 125 of his quotes along with explanations behind them. Although it’s not a story or a training manual, he explanations of the quotes are really interesting and there are a large number of lessons to be learnt.