Dear Investment Academy Reader,

Every week there’s a new magic bullet for investing. Whether it’s spread trading or the “hottest” share tip, we’re bombarded with new ways to turn a profit. But more often than not the detail is so confusing that we hand over our wealth without really understanding the “fine print”. We hand over our power over to brokers and financial managers. And giving someone our power makes us their victim and leaves us powerless.

Today I’m sharing some investing principles with you that’ll help give you the confidence to tell your broker to “shove it”. Warren Buffett’s Wealth Principles and Methods are simple and effective. They may not be easy to implement at first. But if you’re patient and persevere, you’ll achieve financial independence.

Warren Buffett’s seven principles of wealth:

Rule #1: Live economically:
To achieve financial independence, you need to spend less than you income and never lose capital. Know your costs and keep them low. Spenders and consumers rarely become investors.

In fact, Buffett (who’s worth $47 billion) still regards himself as “thrifty”.

Rule #2: Become an independent thinker:
The financially independent person thinks outside the box. He doesn’t buy into an RA fund because he’s told it’s the right thing to do. He reads “between the lines”. And he never follows the crowd.

People who’ve made their significant money on the stock market haven’t always bought the most-liked shares. They’ve done their homework and bought valuable stocks – even if they weren’t popular.

Always remember to do your homework first: Research and appraise companies until the right opportunity presents itself. Trust us, it’ll be worth it. When an opportunity arises – have the courage to move decisively. Only buy value!

Rule #3: Don’t expose yourself to too much risk:
Always operate with a margin of safety. This is the key to wealth. Always buy at a significant discount to the market value by calculating the intrinsic value of an investment (see rule #4) and then discounting it (by ideally 25%).

It’s vital to differentiate between value and price. Only pay a reasonable price, even for an excellent investment.

Rule #4: Look at intrinsic value not price:
It’s vital to look at how much a business investment will earn over its life time. And the same goes for any other type of investment too. Know how to calculate the present value of a future stream of income (its intrinsic value). Always know enough about an investment that you can figure out its intrinsic value: How it makes money, the durability of its earnings, what its weaknesses are, opportunities for future growth, the strength of its competitors and competence of its management. If you don’t know these things about an investment – don’t invest in it.

Rule #5: Keep investments for life:
Don’t sell too soon. And if possible – never sell. At the end of the day, it’s best to buy cheap and keep it forever. If you have to move your wealth, never make more than twenty investment moves in your long-term investment portfolio. Five to ten moves is ideal.

Rule #6: Own a business not a share:
Be a business owner as opposed to a share trader. It’s vital to chase real business value – not shares.

Wealth is created through owning the right businesses with the right management. Buffett doesn’t interact with people he doesn’t like or admire. And neither should you.

Rule #7: Keep it simple:
Only invest in businesses that are simple and uncomplicated with a history of consistent earnings, little debt and management that manages the business for the benefit of the owners. Invest rationally not emotionally. Take your time, be patient and wait until the time and the numbers are right. Then act.

Investing in the stock market might seem a little scary. But with some time and dedication your return on investment (like Buffett’s) will always be significantly ahead of the market. And that’s the road to financial independence.

Here’s to your financial freedom,

Karin Iten
for the Investment Academy