Warren Buffett says there 2 rules to investing:

Rule #1: Don't Lose Money

Rule #2: Don't Forget Rule #1

Today we'll go over how a beginning investor can break these rules down into useable piece.

The reason it's important to understand why these two rules are powerful is simple. In investing, in order to finish the race, you must first finish. If you never finish the race (in investing terms, this would mean you go broke), then you'll never be able to generate life changing wealth.

For those few investors who decide to follow these two rules, you'll increase the chances of being:

Financially independent
Able to live a life of leisure
Able to donate your time and resources to causes you believe in

Unfortunately, most people do not follow this advice. They do the exact opposite!

They do this because the allure of quick profits overtakes their risk aversion

Here are what most people think about when making an investment:

They prioritize profits

They forget about the risks they take chasing profits

They treat their money like an unlimited resource

Investing this way is the quickest way to ensure you never reach financial independence.

So let's look at how we can implement Buffet's two rules to make more money.

Here's how, step by step:

Step 1: Understand the value of what you are buying

If you can't value an asset, you'll never know it's true worth.

If someone wanted to sell you a 2000 Honda Civic that barely ran and had been in a number of accidents, would you pay $50k for it? This is what people do when they hear a friend make a tip about a stock. They put a blindfold on and pay anything.

Instead, figure out what it's worth then move to step 2.

Step 2: Buy with a margin of safety

As step 1 stated, you have to have some idea of what your asset is worth.

Next, you'll want to buy it when it's priced so that the probability of losing money is low.

For this, you'll have to find out what the asset would be worth if things went wrong. If earnings grow slow, and the market lowers its value, your asset might only go from $10 to $15 in 5 years. This is still a ~7% return. But in your bull case it can actually go up to $20-30 a 15%-27% return.

These are the types of bets you want, even if you "lose" you don't actually lose money!

Step 3: Let the power of time compound your investment

This last step might seem like the easiest step of all, but in reality, it's the most difficult.

Most investors forego the effects of compounding because they'll sell a stock the moment they see its price decrease.

The intelligent investor knows that price fluctuations are part of investing. They'll continue holding as long as the company has improving fundamentals.

If you can begin your investing journey by following these 3 steps, you'll be well on your way to financial independence.

Why The Novice Investors First Rule Of Investing Should NOT Be Profits

Warren Buffett says there 2 rules to investing: Rule #1: Don't Lose Money Rule #2: Don't F

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