Warren Buffet 7 Principles to Investing

● Managers must have integrity & Talent

● Invest by facts not emotions
● Buy Wonderful Businesses Not “Cigar Butts”
● When You see a great opportunity Take it
● Don’t Sell Unless the Business Fundamentally Changes
● Buy at a price below Intrinsic value

Growth Stocks
● Big potential for growth / outpacing the market (SAMZN, $FB, SMSFT)
● Typically low or no dividends (reinvesting retained earnings)
Income Stocks
● Regular Dividend payment ($MMM, $WM, $VZ)
● Proven track record/biz model, consistent increase in dividends
Value Stocks
● Perceived to be trading below its fundamentals (P/E Ratio, P/B Rat
● Typically seen as unfavorable in the marketplace

Stock Sectors:An area of the economy in which businesses share a product/service

There are 11 broad sectors:
1. Energy (oil, gas,
2. coal, fuel, etc.)
3. Materials (chemical, metals, paper)
4. Industrials (defense, aerospace, manufacturing)
5. Consumer Discretionary (apparel, household products, etc.)
6. Consumer Staples (food, beverages, etc.)
7. Healthcare (pharma, healthcare equip)
8. Financials (banks)
9. Information Technology (internet, software,
10. semiconductor)
11. Telecommunication Services (AT&T,
12. Verizon, etc.)
13. Utilities (electric, gas, water companies)
14. Real Estate (REITs, apartments, malls, office space)

Preferred Stock & Common Stock

Preferred = No Voting Rights
Common = Voting Rights
Last in line to get paid oNt in case of liquidation
Last to get paid a dividend
You are usually buying common stocks when "buying stocks"
Large Cap, Mid Cap, and Small Cap Stocks
Market Cap = Shares Outstanding x Share Price
(A dividend is the distribution of some of a company's earnings to a class of its shareholders, as
determined by the company's board of directors)
Large Cap ($10B+ Market Cap)
● Typically hard to achieve massive growth due to size
● Proven track record over many years, frequently offer dividends
Mid Cap ($2B-$10B Market Cap)
● Not quite large cap, and more established track record than small cap
● Often target of M&A (Mergers and Acquisitions)
Small Cap ($300M-$2B Market Cap)
● Typically younger and are seeking aggressive growth
● Higher risk & Don't usually offer dividends

Risks
1.Market Risk
● economic developments/other events
2. Liquidity Risk
● can't sell your investment
3.Concentration Risk
● too many eggs in 1 basket
4.Credit Risk
● entity can't repay (i.e. - bonds)
5.Inflation Risk
● loss of purchasing power (i.e. 3% < 5%)
6.Horizon Risk
● your investment time frame changes
7.Foreign Investment Risk
● applies to foreign investments

Types of Stocks
Individual Stocks
Pros:
● Exon
● Reduced/No Fees
● No management fee to own
● Complete control/understanding of what you own
● Taxes are easy to manage (capital gain / loss)
Cons:
● Hard to diversify (need 20-100 to achieve adequate diversification)
● More effort/time to monitor portfolio (rebalancing, etc.)
● FOMO / Emotions
Mutual Funds = Pools of money from the public to buy securities
Pros:
Liquid
Diverse
Professional Management (active vs. passive)
Lot of options (balanced, fixed-income, money market, income, etc.)
Cons:
Higher fees
Not FDIC insured
Mutual
Large cash holdings
Hard to evaluate (apples to apples)

Index Funds = Basket of stocks to mimic a certain market index

Pros:
Low Fees
Outperform Active Management over time
Easy to own / manage / invest in / achieve goals
Cons:
No control over holdings
Lack of downside protection (NOT a hedge fund)
Lack of different strategies

ETFs= Basket of stocks to mimic a certain market sector that trade on an exchange
Pros:
● Access to many stocks
● Low expense ratios
● Easy to own / manage / invest in / achieve goals
Cons:
● Actively managed ETFs have higher fees
● Lack of downside protection (NOT a hedge fund)
● Diversification is limited by focusing on 1 industry

REIT = A company that owns, operates, or finances income-producing real estate

Pros:
● Access to a historically unaccessible asset class
● Liquid
● Stable cash flow through dividends (have to pay out 90% of income)
● Historically sound asset class
Cons:
● Dividends are taxed as regular income
● Subject to market risk (economy downturn 2008)
● Can have high management fees