Warren Buffett is one of the best investors ever. From a few dollars, he’s built up a net worth of over $130bn due to his incredible stock-picking ability.
He’s provided retail investors with plenty of advice over the years. As I’ve grown as an investor, I’ve continuously tried to implement his valuable wisdom into my decisions.
That said, here are two of his rules I’ve followed from the start and will always follow when stock picking.
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Rule #1
Rule number one is to buy what I know. By that, I mean investing in companies I understand.
Buffett says that one of the easiest mistakes is to invest in companies that are overly complex. Instead, investors should stick to businesses where they can easily understand how it generates revenue and what value it adds.
Rule #2
Rule number two is investing for the long run. If I can’t see myself owning a stock in 10 years’ time, I won’t buy it today. Buffett once famously said his favourite holding period is “forever”.
There are plenty of advantages to investing with a long-term mindset. The stock market is volatile. Peaks and troughs are inevitable.
However, these short-term ups and downs are ironed out by focusing on the bigger picture. That’s an approach we take here at The Motley Fool.
Rules in action
It’s for those two reasons that I own shares of Buffett’s largest holding Apple (NASDAQ: AAPL). It was one of the first stocks I picked up. I have plans to hold on to my Apple shares for a very long time.
The main reason I’m so bullish is because it ticks both of the boxes above. Let me explain.
Of course, I must note that past performance is by no means an indication of potential future returns. But in the last five years, Apple stock is up a whopping 330.3%. During the same time, the S&P 500 is up 83.1%.
In the last decade, the Apple share price has risen a monumental 753.7%. The S&P 500 has returned 168.8%. That’s proof that biding my time in the stock market can pay off. I believe Apple will be able to keep delivering in the years ahead.
Second, it’s incredibly easy to understand Apple’s business model and the value the company provides. Around a fifth of the world’s population owns an Apple product. That means it has a remarkably strong grip on the market.
To go with that, it’s also very efficient at keeping users in its ecosystem. A key part of that is the seamless integration users experience across multiple Apple devices.
As I said, Apple is a stock I plan to keep in my portfolio for decades. But I know there are some risks. Its poor performance in China is the main one right now. Sales are down in the region as the Chinese economy has stumbled.
However, I remain bullish for the long run. In fact, I’m hoping to add to my position soon if I have the cash.
