Rule #1

Rule #1 hands you the reins of personal investing, even if you’ve never held them before, by using a few simple rules from Warren Buffett’s value investing approach to guide you towards financial independence.

Even Warren Buffett doesn’t buy all the businesses he invests in in full. But he sure acts as if he did. When you go into an investment thinking: “Hey, if they screw up, I can always sell my stocks.” you mustn’t wonder if that’s exactly what’ll happen.

Your investment into a business is a vote for that business to continue its practice as it operates today.

Therefore, if you’re investing in a business using shady tactics, like child-labor or extortion, you’re condoning and even encouraging this shitty business to continue.

So before you invest, ask yourself this: Would you buy the whole business, if you could? Much harder to overlook sleazy practices now, isn’t it?

What this question does is force you to be a lot more cautious, make better decisions and do your homework. Now you’ll want to learn as much about the company as you can and maybe even limit yourself to investing only in an area, which you know and work in yourself.

In case you don’t know what a moat is, it’s the kind of deep trenches castles in the Middle Ages built around them and filled with water, in order to keep enemies at bay. Warren Buffett famously explained his idea of economic moats around companies in a talk once. He sums it up in a single question: How much damage could I do if you gave me $100 million and I went head-to-head with that company? For example with Coca Cola, this wouldn’t get you very far. It’s one of the strongest brands in the world, and people will always choose it over other, less famous soda brands. Heck, shoeless jungle kids somewhere deep in the Amazon Rainforest will turn up wearing Coca Cola shirts – a kind of presence that sure makes for a wide moat. Other moats could be patents, like Pfizer’s Viagra patent, which kept it ahead of the competition for 20 years. Walmart built a good moat too, by using its cheap prices to open more stores and get more sales, which, in turn, led to a bigger negotiation power with suppliers to offer even cheaper prices. Another kind of moat can come from government regulations, for example when you’re the only, legally allowed supplier of electric power or public transport. Lastly, if your product is crap, but it’s impossible to switch (ahem, Windows), that can also be a moat. A moat keeps a company afloat for years to come, ensuring future profits, thanks to a…