Warren Buffets Simple Strategy

Warren Buffet has a simple strategy for the companies he invests in. And he has one of my favorite quotes: “The best CEO’s are the best allocators of capital…”

In investing terms this is known as ROIC, return on invested capital. Business owners who can invest their excess capital at higher rates than the cost of that capital are those that create the most predictable and sustained value.

If they run out of new ideas from the R&D department they buy stocks back or pay a dividend. The best are always finding ways to reinvest in the company and deploy that resource.

This is a massive trading lesson for you.

“Prop traders” are obsessed with one thing, buying power. Always asking for more buying power. More resources to allocate to good ideas.

The more you prove that you can handle, through risk management and profit management, the more you are allocated.

Retail traders need to think more like Warren Buffet. You need to be strict with where you allocate your capital. There’s “okay” ideas, and great ideas. You need to ruthlessly assess all ideas and REALLY think through how you are going to “tie up” your capital.

New traders trade for excitement until they learn risk. Experienced, profitable traders are patient because time is money.

Think deeply before you put your money out there. You might have a good idea, but dig deeper and ask if it’s the best idea.