12 Trading (Not Investing) Principles from Warren Buffett

Apurva Sheth
Warren Buffett, the Oracle of Omaha, is known for his views on investing. He is widely considered the most successful investor of the 20th century. He's noted for his adherence to the value investing philosophy and his personal frugality despite his immense wealth.

Buffett's investing principles have stood the test of time and have proven successful across multiple business cycles. His investing principles have not only helped him amass huge wealth but many, many others too.

Our colleagues at Equitymaster have also tasted success by following the same principles Warren Buffett applies while picking stocks. Their ValuePro service filters and recommends stocks that meet 'Buffett-would-buy' criteria. Their aim is to pick companies that boast of healthy moats, robust financial track records, and good dividend payouts.

But that's not all. Buffett's principles are not restricted to investing. We can apply them to trading. In fact, I have been applying them ever since I launched our short-term stock trading service, Swing Trader.

I shared these principles earlier in detail in a two-part series - six in each for a total of twelve principles. As time passes, we tend to forget these principles, so I want to reiterate them in brief here today. You can read them in detail by following the links below.

  1. Choose simplicity over complexity
  2. KISS - Keep it Simple and Straightforward. Learn the basics of trading and technical analysis and apply them. Complexity may sell, but simplicity will make money.

  3. Make your own investment decisions
  4. The best person to take an investment or trading decision for you is you.

  5. Maintain proper temperament
  6. Stay calm and disciplined and follow your process.

  7. Be patient
  8. Patience is a skill every trader has to develop. No trader or investor becomes an overnight success. It takes time.

  9. Concentrate your stock investments
  10. Don't have more than ten positions open at any one time.

  11. Practice inactivity, not hyperactivity
  12. At times, doing nothing is the best strategy. Traders shouldn't mistake activity for achievement.

  13. Don't look at the ticker
  14. One should do adequate research of the stock before taking a position. Then let it run its course.

  15. Stay within your circle of competence
  16. A trader should stick to areas he understands. And when trying new things, he should equip himself with proper knowledge before making a decision.

  17. Be fearful when others are greedy and greedy when others are fearful
  18. If you want to profit from trading, you have to trade based on others' emotions rather than trading on your own emotions.

  19. Read, read some more, and then think
  20. Every trader should inculcate the habit of reading. Reading broadens our horizons and helps us think in new ways.

  21. Use all your horsepower
  22. A trader has to plan his trade and then check if he is trading according to his plan. A trader should create a habit of recording his trades in a trading journal and making notes before, during, and after the trade.

  23. Avoid the costly mistakes of others
  24. Traders can take inspiration from other traders' success, but they should never forget to learn from others' failures as well.
Click here to read Part I

Click here to read Part II

What are your trading principles? Share your views in the Club or share your comments here.

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