Right this moment, billionaire investor Warren Buffett celebrates his 94th birthday.

Over many many years within the inventory market, the Sage of Omaha has earned billions of {dollars} by investing within the shares of blue-chip corporations like Apple and Coca-Cola (NYSE: KO).

Buffett has shared lots of his investing knowledge publicly many times. Listed below are three items of his knowledge I recurrently apply to my very own investing.

1. Don’t spend money on what you don’t perceive

Buffett has constantly caught to the identical types of companies all through his profession – and that’s not a coincidence.

When requested why he has made sure investments and likewise why he missed out on some that might have turned out brilliantly in the long run, he reply is similar. He sticks to areas he feels he understands.

Why does that matter?

Placing cash into one thing you don’t perceive and subsequently can’t assess shouldn’t be funding, it’s hypothesis.

2. At all times take into consideration money flows

Does revenue matter for a enterprise?

Briefly, after all it does. However revenue shouldn’t be essentially what many individuals suppose it’s. Revenue is an accounting idea and might embrace non-cash gadgets. So – and we now have seen this with many listed retailers over the many years – an organization will be worthwhile but go into chapter 11.

Why? Money circulation.

Money circulation is the onerous, chilly money coming in (or going out) of the door.

Buffett understands that very properly — and why money circulation issues to traders. Certainly, one of many causes he has spent his profession investing in insurance coverage corporations is as a result of they usually generate some money circulation as we speak (consider your yearly premiums) however might not want to make use of it for many years (if you don’t make a declare).

In the meantime, spare money circulation can fund different investments – precisely using insurance coverage corporations’ ‘float‘ (money that’s spare, for now) that helped Buffett construct Berkshire Hathaway.

3. Staying mainstream will be very profitable

Some traders imagine that the largest returns are to  be made in small, rising companies.

But Warren Buffett has largely invested in giant, well-known corporations that have already got confirmed enterprise fashions.

As a small investor, I believe that method is smart for me too.

As an example, the marketplace for comfortable drinks is already large, so Coca-Cola doesn’t must spend closely to teach shoppers on why or how to use its merchandise (in contrast to many start-ups). However the cash it has spent constructing its manufacturers over many years means it now generates large gross sales.

Others might need to break into the market, however robust manufacturers and proprietary formulation give Coca-Cola a aggressive benefit. That in flip provides it pricing energy, that means it could actually enhance its revenue margins with out essentially dropping prospects.

That may be a traditional Warren Buffett enterprise. One threat I see is well being considerations hurting demand (although Buffett has reached a spritely 94 whereas guzzling gallons of the stuff). Coca-Cola’s diversified vary of merchandise might assist mitigate that.

Warren Buffett has invested in giant, well-known blue-chip companies listed on the inventory market — and made billions doing so. What an inspiration!