All investors and traders alike knew Warren Buffet the Oracle of Omaha. This guy has been listed in Forbes billionaires list as one of the most wealthiest people in the world for 25 years. He could not do this without unique criteria that make him different than others who work with him in the same field. One of those criteria that made Warren buffet the man that we knew today is that he is capable to distinguish between the asset price and its value. For example, if he want to buy stocks in a company, he will first study the company to determine its value and how much cash this company are capable to generate in the coming 20 or more years. Once he end up his calculation and come up with a value for that company, he then see what is the price that value listed for (stock price). If the price is too high that cannot justify the value then he will pass this investment. But if the price of the stock was reasonable for the value or was so cheap he will ask himself another question before he invest and this question is the one that distinguish him form all other.
He will sit a side and ask himself this question: (If I – Warren Buffet – have only 20 investment chances in my life, would I loss one of them to invest in this company?). If the answer was yes he then will invest in this company, but if he see there is no chance to waste one of his 20 chances to invest in this company, he will stop right there and look for another opportunity to invest in it.
This question is telling us that how easy for Warren Buffet to skip an opportunity while it seems good investment for that time been and capable to control himself and his greed. That what make him skip investing in the dot com companies which was the reason for the financial crisis that hit the stocks markets at the end 1999 and the beginning of 2000. It is not an easy for investors and traders to pass an opportunity and did not take it once its arise which is the reason why there is no investors or trader make a fortune like the one Warren Buffet did.
This question that Warren Buffet used is working as filter for the good chances that he counter. When you dig deep and see how much investors and traders losing money chasing each chance appear in front of them looking for profit in short term you know why this question is so important.
To explain it clearly let assume that an investors who studied a company and went through its financial records and see everything is fine with it, then he decided immediately to invest in that company or may be wait for good technical indicator signal to buy its stock. This investors think only in one mind set which is buying this stock because its company has good financial records. He did not think in the other direction which is why I should not buy this stock even if its company shows good financial records and it is a good opportunity to invest. If she think carefully in this mind set – to not invest in a company where it seems good opportunity – she might end up with good reason or two or may be more why she should skip this investment and look for other opportunity.
The lesson form this for investors and traders is not to skip any opportunity they did due diligence about investing in it. The lesson is to think about any chance arise in front of them twice in different mind set, the first of which is why they should invest in it, and the second of which is why they should skip this investment even when it seems good one, as pros and cons for investing or trading this opportunity. Once pros is higher than cons then they are free to invest or trade this chance, but once the cons is greater than pros then they need to pass this opportunity and look for another one, to minimize their chances to end up in an investment that will make them little profit or even worst by wiping their money.