Today is the first day of 2025.

What we are sharing are the five timeless investment principles from Buffett. Buffett is like the Midas of Greek mythology, using his magical ability to turn stone into gold, creating the Berkshire empire and the legend of a veteran in the stock market.

Buffett's success relies on a set of extremely simple yet unique investment principles and philosophy, backed by his profound thinking and insights into the financial market.

So what are the investment principles that can gradually make us wealthy?

A new year has arrived, and it is hoped that Buffett's suggestions, which are like a 'stabilizing force', will be beneficial to you. Below, Enjoy:

Key Points

• Stay Rational

• Avoid risks as much as possible and protect the principal.

• Being a long-term investor, patience is key.

• Adhere to the principle of the circle of competence.

• Look for companies with competitive barriers.

Investment Principle One: Stay rational.

Rationality is one of the core factors of Buffett's investment philosophy. When investing, it is essential to stick to one's own views without being influenced by others, not to rejoice in material gains or grieve over personal losses. He spends most of his time thinking and reading, which sets the tone for his investment strategy: basing investment choices on intrinsic value rather than trendy stocks; constantly buying and selling in the stock market is not a wise approach. To be successful in investing, a business must exhibit good judgment and one must remain unaffected by 'Mr. Market.'

Investment Principle Two: Avoid risks as much as possible and preserve the principal.

Among Buffett's famous investment quotes, the most renowned undoubtedly states: 'The secret to success has three parts: First, avoid risks as much as possible and preserve the principal; Second, avoid risks as much as possible and preserve the principal; Third, firmly remember the first two.' To ensure fund safety, Buffett always maintains a clear mind and retreats bravely when the market is at its most euphoric and investors are most greedy.

In May 1968, when the American stock market was in a frenzy, Buffett believed that he could no longer find any stocks with investment value, so he sold all of his stocks and dissolved the company. As a result, the stock market plummeted in June 1969 and gradually turned into a stock market crash; by May 1970, every stock had decreased by 50% or more compared to the beginning of the year.

Buffett's prudent investment strategy of avoiding "uncertain matters" has helped him evade stock market crashes time and again, while allowing his capital to appreciate rapidly when opportunities arise. However, many investors take risks without understanding the risks or lacking sufficient risk management abilities, or they lose their risk control awareness out of greed. Before making any investment, we should prioritize risk factors and consider how strong our capacity to withstand risks is, so we can maintain an unbeatable position.

Investment Principle Three: Be a Long-Term Investor, Patience is Key.

Another major factor in Buffett's success is that he is a long-term investor rather than a short-term one. Buffett never chases short-term market gains, nor does he follow a company simply because its stock rises sharply in the short term; he strives to avoid investing in companies that are overvalued by the market. Once he decides to invest, he basically holds on for the long term.

In a relatively short period, Buffett may not be the most outstanding, but no one can outperform the market average like Buffett does over the long term. His profit record reveals that his assets consistently show stable growth with little volatility. Buffett's principle is: Do not frequently intervene, only act when there are good investment opportunities; if there are none, prefer to Hold Cash.

Under the leadership of Munger and Buffett, Berkshire averaged an ROI of 20% annually from 1965 to 2022, far exceeding the performance of the S&P Index during the same period. From the perspective of a single year, many investors might not care about this, but no one can maintain such a return over such a long time. This is because most people are influenced by human weaknesses such as greed, impatience, or fear, becoming a speculator or a short-term investor, rather than a true long-term investor like Buffett.

Investment Principle Four: Adhere to the Circle of Competence Principle.

In the 1993 letter to shareholders, Buffett described the circle of competence as follows: "Every investor will make mistakes, but as long as they limit themselves to a few easily understandable investment targets, a wise, knowledgeable, and diligent investor can surely manage risk within a controllable range."

The greatest difficulty in adhering to the circle of competence principle lies in resisting the temptation to step outside this circle in pursuit of greater profits. In the late 1990s, during the tech stock bull market, Buffett did not buy a single share, despite earning only 0.5% in 1999 when the market soared 21%; he still adhered to the circle of competence principle.

Starting from the year 2000, the bubble in the USA stock market for internet stocks burst, leading to three consecutive years of decline in the stock market with a drop of more than half. During these three years, Buffett made a profit of 10%, significantly outperforming the market.

Investment Principle Five: Look for companies with competitive barriers.

Buffett is passionate about companies that can create significant competitive barriers against their competitors. Of course, this does not necessarily mean that the companies he invests in monopolize a particular product or market. For instance, Coca-Cola has never lacked competitors. The so-called competitive barrier in Buffett's view refers to those with long-term competitive advantages, where the intrinsic value and brand advantages of the company are unreachable by other companies in the same industry. Buffett says: "Our focus is on trying to find those companies whose operational situations can typically be predicted 10, 15, or 20 years in the future."

The above is Buffett's secret to coping with market risks in investment, and it is also a "secret to getting rich" that we can learn from.

Of course, no single approach can adapt to all markets; the only secret to maintaining a winning streak in investment is to retain the capacity for evolution, continuously improve and surpass oneself, and refine the methodology to reap the fruits of compounding in the long investment race.

Editor/Somer