Warren Buffet has become a legend in the investment community. His strategy, knowledge and intuition have made Berkshire Hathaway one of the most successful corportations worldwide. So what is the secret of his success? Five simple rules that every investor should take to heart…

Buffet’s first rule: Trust what you know – not your gut instinct. Decisions should always be based on cold hard facts. The bank that is issuing the fond or certficate will have comprehensive information. Investors will be able to find out what strategic plan a fond has, how a certificate is defined or whether the securities are compatible with their investment goals. If you’re investing in stocks, the “Investor Relations” section on the company website will usually have details about their opportunities and plans – giving you inisight into the stock’s potential.

Don’t buy popular stocks

Another mantra that Buffet likes to repeat endlessly: “Buy stocks that do not have the attention of the masses. His reasoning: “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well” He argues that the popular opinion always loses on the market. If you look at the popularlity of the dot-com stocks amongst small investors this certainly seems to be the case. By the time the boom had reached its pinnicle and caught the attention of the masses, there was very little money left to be made.

Another aspect of this strategy that every investor should take note of, is the longevity of an investment. According to Buffet, you shouldn’t make investments that you aren’t willing to hold on to for at least ten years, you shouldn’t hold on to it for even ten minutes. His reasoning is that you shouldn’t even consider investments in companies in which you do not have confidence in their long-term prospects. Buffet explains: “Focus your investments – If you have a harem of 40 women, you never get to know any of them very well.”

Spread your investments

It’s a fact that only only investing in one or two titles is dangerous. No-one is infallible and if you make a mistake with these two investments, you’ll be risking a lot. Warren Buffet’s “Noah’s Ark” approach: Your depot should never be broadly mixed like a zoo, but should contain investments that supplement each other and are coordinated to minimize your overall risk.

The deciding principle that Buffet lays out is his insistence of “understanding”: It dictates that you should only invest in companies, fonds, and certificates if you actually understand the investment and its risk. If you’re buying shares, this means understanding what the company actually does, how do they make money? What are their future prospects? If you’re investing in fonds and certificates, find out whether you’re investing in a grab bag and have to hope that it ends up making money in the long run, or whether the investment makes sense and you know in detail what you’re getting yourself into. Only if you have know the answers to these questions will you be able weigh the the potential against the risks. And before you’ve done that, the investment wouldn’t make any sense.