Warren Buffett's secret sauce

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1. Don't lose money

2. Don't forget rule number 1.

3. When you are investing in a stock, you are buying to be part of that business (eg. part owner in the business).

4. Its better to buy a GREAT quality business for a slight premium than to buy a mediocre business at a fair price. Eg. Its better to buy a Coca-Cola than to buy Joe's Cola because Joe's Cola is trading at a cheaper multiple than Coca-Cola.

5. Buy a business that has a strong and leading moat. Eg. Coca-Cola, people associate it with happiness according to Mr Buffett. 

6. Stick to your areas of competence or the businesses you understand. Eg. if you work in that industry like the car industry, you will have an upper hand in understanding the state of the car industry.

7. The power of compound interest: its important for the business has a high amount of retained earnings that is reinvested back into the business. Eg. like putting $100 at a 5% interest rate, assuming a simple interest annual payout, at the end of the year you will have $105, end of year 2 you will have $110.25, end of year 3 you will have $115.76 etc. As you can see with Berkshire Hathaway Inc, they never paid a dividend and most its holdings they rarely buy and sell on a frequent scale, thus they do not pay as much capital gains taxes. So the company has exponentially grown like compounding returns.

8. Not buying or missing out on a stock that is rising is okay. Eg. its like playing baseball, if you are the batter you don't have to swing at every ball that is pitched. You just have to swing at the right ball when its pitched.

9. Know basic accounting, but you don't need to be an expert accountant. Understanding accounting is the language of business and ability to interpret financial statements. According to Buffett, its like going to another country but not knowing the local language to communicate in, the same principle applies to accounting and business. What I think is the most funniest thing I can see is you have all these accounting graduates, CPAs, or chartered accountants but they don't understand a business or where to invest, its because in their heads they are programmed to get a degree and look for a job.

10. Buffett's favourite rule: buy a business whose intrinsic value is much higher than the market value. Buffett's way of determining a business's future cashflows and discounted back to determine the fair value.

11. You looking at the scoreboard constantly won't change the state of that investment. Its like if you were a sports spectator and you are watching the game, you looking at the scoreboard constantly isn't going to change the score.

12. When you buy a stock, its like buying a farm or a house as Buffett states. You don't buy a farm thinking the price of the farm is up tomorrow or up next week. You buy the farm working out how much it yields, what are the cashflows it generates. The same principle applies with a stock.

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