high risks in order to make high returns, master investors like
Warren Buffett believe that it does not take high risks to make
high returns. Instead, it takes a high level of financial and
business competence to make high returns!
In fact, he will only make an investment when there is a very low
risk of loss and a very high probability of gain. He does this by
only investing in companies that are selling way below their true
value. In this way, he gives himself a wide margin of error. Which
means even if his calculations are off, he will still be making
money.
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Invest Only When There Is A High Probability of Success
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The trouble with professional managers of mutual funds is that they
are pressured to invest 80% of their cash into the market, even
when there is nothing attractive to buy. This happens after a
prolonged bull-run when stock prices are so high that companies are
way overvalued.
On the other hand, Buffett would happily keep all his money in cash
and only invest when there is a golden opportunity. This is exactly
what happened in 1999-2000 (stock prices were insanely overvalued)
when Buffett was criticized for not making a single investment and
keeping all his money in cash.
Buffett only moved in to buy after 2001, when stock prices had
crashed and companies could be bought for a steal. So, if you want
to be able to consistently beat the market and make higher returns
that anyone else, shouldn't you begin by adopting the beliefs of
the world's greatest investor?
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