{"id":54411,"date":"2021-11-04T13:27:00","date_gmt":"2021-11-04T17:27:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=54411"},"modified":"2021-11-17T10:37:58","modified_gmt":"2021-11-17T14:37:58","slug":"how-to-invest-wisely","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/","title":{"rendered":"How to Invest Wisely in the Stock Market"},"content":{"rendered":"\n

How do you master how to invest wisely? What is the investment strategy of Warren Buffett and Charlie Munger?<\/p>\n\n\n\n

You master how to invest wisely when you learn to find fairly-priced, high-quality businesses with good management. Buffett and Munger applied these principles along with a focus on investing in companies that are underpriced by the market to become the legends they are today.<\/p>\n\n\n\n

Read on to fully discover how to invest wisely in the stock market.<\/p>\n\n\n\n\n\n\n\n

How to Invest Wisely<\/strong><\/h2>\n\n\n\n

Buffett and Munger are disciples of value investor Benjamin Graham, who advocated for investing in businesses that were underpriced relative to their value. However, the two expand beyond Graham\u2019s principles by considering more factors than just book value, such as the quality of a business, its growth prospects, and its management.<\/p>\n\n\n\n

Here are their tips on how to invest wisely in the stock market:<\/p>\n\n\n\n

Find High-Quality Businesses<\/strong><\/h3>\n\n\n\n

Beyond just looking for cheap deals, Munger looks for high-quality businesses. In sum, these are profitable businesses that have a sustainable competitive advantage<\/a> and good growth prospects. (Shortform note: We\u2019ll discuss competitive advantage in the next chapter.)<\/p>\n\n\n\n

When you fully grasp how to invest wisely in the stock market, you come to recognize that quality of a company may even override cheapness\u2014\u201da great business<\/a> at a fair price is superior to a fair business at a great price.<\/strong>\u201d A company that returns 18% on capital over twenty years can get amazing results, even if you pay a price that looks expensive at first.<\/p>\n\n\n\n

The benefit of a high-quality business is you don\u2019t need to fret over when to sell it. When you buy a cheap low-quality company, you have to worry about when to exit your investment, since future opportunities may never come again. In contrast, great businesses will stay great for years or decades, and you can wait patiently to sell when it\u2019s in your favor.<\/p>\n\n\n\n

Not all profits are made equal. Some businesses earn 15% on capital, and you can take the profits out as cash. Other businesses make 15% too, but the cash needs to be reinvested to sustain the business, so there\u2019s never cash that you can take out of the company.<\/p>\n\n\n\n

Look for Excellent Management <\/strong><\/h3>\n\n\n\n

Ben Graham never accounted for management quality in his value investing principles, partially because he was writing to a mass audience who wouldn\u2019t have the opportunity to talk to and assess management, and partially because he had an intrinsic distrust of management.<\/p>\n\n\n\n

But Munger and Buffett believe management can make a big difference. For example, famed CEO Jack Welch<\/a> made a big difference for General Electric, in ways that the manager of Westinghouse didn\u2019t. <\/p>\n\n\n\n

Knowing how to invest wisely in the stock market means looking for companies with management that is 1) unusually skilled and 2) trustworthy<\/strong>. <\/p>\n\n\n\n

However, management shouldn\u2019t be the dominant factor\u2014it\u2019s better to bet on a high-quality business than to bet on great management.<\/p>\n\n\n\n

Value Companies Fairly<\/strong><\/h3>\n\n\n\n

Of course, mastering how to invest wisely in the stock market is not just about finding great businesses, but also great businesses at great prices. Even a fantastic business can be a terrible investment if the price is too high.<\/strong><\/p>\n\n\n\n

Consider betting on a horse race. The best horse is often obvious, based on its track record, weight, health, and so on, and it\u2019s clearly better than a sickly horse with a bad record. But the odds already reflect that\u2014the best horse might have odds of 2 to 1, while the bad horse has odds of 50 to 1. Which is the better deal? It\u2019s not immediately clear.<\/p>\n\n\n\n

Likewise, a company with strong management, a great competitive moat, and a profitable business model is a sound business, but its price probably already reflects much of that. It\u2019s not a good idea to invest in a business at any <\/em>price.<\/p>\n\n\n\n

However, the market is not perfectly efficient at all times. Great businesses can <\/strong>sometimes<\/em><\/strong> be found at great prices, due to the erratic nature of the market.<\/strong> Ben Graham conceptualized this in the idea of Mr. Market<\/a>, a manic-depressive who shows up at your doorstep each day and offers you a price that can be far higher than what you think it\u2019s worth, or far lower. You have the choice of whether to buy from Mr. Market, sell to him, or do nothing. If you\u2019re patient, you can find the times when the market underprices a good company.<\/p>\n","protected":false},"excerpt":{"rendered":"

How do you master how to invest wisely? What is the investment strategy of Warren Buffett and Charlie Munger? You master how to invest wisely when you learn to find fairly-priced, high-quality businesses with good management. Buffett and Munger applied these principles along with a focus on investing in companies that are underpriced by the market to become the legends they are today. Read on to fully discover how to invest wisely in the stock market.<\/p>\n","protected":false},"author":10,"featured_media":47478,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,31],"tags":[533],"class_list":["post-54411","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-money","tag-poor-charlies-almanack","","tg-column-two"],"yoast_head":"\nHow to Invest Wisely in the Stock Market - Shortform Books<\/title>\n<meta name=\"description\" content=\"How do you master how to invest wisely? Here is why you should focus on fairly-priced, high-quality businesses with good management.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to Invest Wisely in the Stock Market\" \/>\n<meta property=\"og:description\" content=\"How do you master how to invest wisely? Here is why you should focus on fairly-priced, high-quality businesses with good management.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2021-11-04T17:27:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-11-17T14:37:58+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"752\" \/>\n\t<meta property=\"og:image:height\" content=\"379\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Joseph Adebisi\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Joseph Adebisi\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/\"},\"author\":{\"name\":\"Joseph Adebisi\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d8daf45671a09e8745a7a9f50a03b2a0\"},\"headline\":\"How to Invest Wisely in the Stock Market\",\"datePublished\":\"2021-11-04T17:27:00+00:00\",\"dateModified\":\"2021-11-17T14:37:58+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/\"},\"wordCount\":753,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg\",\"keywords\":[\"Poor Charlie's Almanack\"],\"articleSection\":[\"Business\",\"Money\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/\",\"name\":\"How to Invest Wisely in the Stock Market - Shortform Books\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg\",\"datePublished\":\"2021-11-04T17:27:00+00:00\",\"dateModified\":\"2021-11-17T14:37:58+00:00\",\"description\":\"How do you master how to invest wisely? Here is why you should focus on fairly-priced, high-quality businesses with good management.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg\",\"width\":752,\"height\":379,\"caption\":\"How to Invest Wisely in the Stock Market\"},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.shortform.com\/blog\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"How to Invest Wisely in the Stock Market\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\",\"url\":\"https:\/\/www.shortform.com\/blog\/\",\"name\":\"Shortform Books\",\"description\":\"The World's Best Book Summaries\",\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.shortform.com\/blog\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\",\"name\":\"Shortform Books\",\"url\":\"https:\/\/www.shortform.com\/blog\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png\",\"width\":500,\"height\":74,\"caption\":\"Shortform Books\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d8daf45671a09e8745a7a9f50a03b2a0\",\"name\":\"Joseph Adebisi\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/IMG_20200519_184908_765-scaled.jpg\",\"contentUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/IMG_20200519_184908_765-scaled.jpg\",\"caption\":\"Joseph Adebisi\"},\"description\":\"Joseph has had a lifelong obsession with reading and acquiring new knowledge. He reads and writes for a living, and reads some more when he is supposedly taking a break from work. The first literature he read as a kid were Shakespeare's plays. Not surprisingly, he barely understood any of it. His favorite fiction authors are Tom Clancy, Ted Bell, and John Grisham. His preferred non-fiction genres are history, philosophy, business & economics, and instructional guides.\",\"url\":\"https:\/\/www.shortform.com\/blog\/author\/joseph\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"How to Invest Wisely in the Stock Market - Shortform Books","description":"How do you master how to invest wisely? Here is why you should focus on fairly-priced, high-quality businesses with good management.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/","og_locale":"en_US","og_type":"article","og_title":"How to Invest Wisely in the Stock Market","og_description":"How do you master how to invest wisely? Here is why you should focus on fairly-priced, high-quality businesses with good management.","og_url":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/","og_site_name":"Shortform Books","article_published_time":"2021-11-04T17:27:00+00:00","article_modified_time":"2021-11-17T14:37:58+00:00","og_image":[{"width":752,"height":379,"url":"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg","type":"image\/jpeg"}],"author":"Joseph Adebisi","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Joseph Adebisi","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#article","isPartOf":{"@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/"},"author":{"name":"Joseph Adebisi","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d8daf45671a09e8745a7a9f50a03b2a0"},"headline":"How to Invest Wisely in the Stock Market","datePublished":"2021-11-04T17:27:00+00:00","dateModified":"2021-11-17T14:37:58+00:00","mainEntityOfPage":{"@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/"},"wordCount":753,"commentCount":0,"publisher":{"@id":"https:\/\/www.shortform.com\/blog\/#organization"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage"},"thumbnailUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg","keywords":["Poor Charlie's Almanack"],"articleSection":["Business","Money"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/","url":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/","name":"How to Invest Wisely in the Stock Market - Shortform Books","isPartOf":{"@id":"https:\/\/www.shortform.com\/blog\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage"},"thumbnailUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg","datePublished":"2021-11-04T17:27:00+00:00","dateModified":"2021-11-17T14:37:58+00:00","description":"How do you master how to invest wisely? Here is why you should focus on fairly-priced, high-quality businesses with good management.","breadcrumb":{"@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#primaryimage","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg","width":752,"height":379,"caption":"How to Invest Wisely in the Stock Market"},{"@type":"BreadcrumbList","@id":"https:\/\/www.shortform.com\/blog\/how-to-invest-wisely\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.shortform.com\/blog\/"},{"@type":"ListItem","position":2,"name":"How to Invest Wisely in the Stock Market"}]},{"@type":"WebSite","@id":"https:\/\/www.shortform.com\/blog\/#website","url":"https:\/\/www.shortform.com\/blog\/","name":"Shortform Books","description":"The World's Best Book Summaries","publisher":{"@id":"https:\/\/www.shortform.com\/blog\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.shortform.com\/blog\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.shortform.com\/blog\/#organization","name":"Shortform Books","url":"https:\/\/www.shortform.com\/blog\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2019\/06\/logo-equilateral-with-text-no-bg.png","width":500,"height":74,"caption":"Shortform Books"},"image":{"@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/d8daf45671a09e8745a7a9f50a03b2a0","name":"Joseph Adebisi","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/image\/","url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/IMG_20200519_184908_765-scaled.jpg","contentUrl":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/07\/IMG_20200519_184908_765-scaled.jpg","caption":"Joseph Adebisi"},"description":"Joseph has had a lifelong obsession with reading and acquiring new knowledge. He reads and writes for a living, and reads some more when he is supposedly taking a break from work. The first literature he read as a kid were Shakespeare's plays. Not surprisingly, he barely understood any of it. His favorite fiction authors are Tom Clancy, Ted Bell, and John Grisham. His preferred non-fiction genres are history, philosophy, business & economics, and instructional guides.","url":"https:\/\/www.shortform.com\/blog\/author\/joseph\/"}]}},"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/08\/wall-street-wallstreet-investing-stock-market.jpg","_links":{"self":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/54411","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/comments?post=54411"}],"version-history":[{"count":1,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/54411\/revisions"}],"predecessor-version":[{"id":54414,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/posts\/54411\/revisions\/54414"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/media\/47478"}],"wp:attachment":[{"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/media?parent=54411"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/categories?post=54411"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.shortform.com\/blog\/wp-json\/wp\/v2\/tags?post=54411"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}