Millionaires and billionaires like Warren Buffett and Peter Lynch owe a large degree of their fortunes to consistently sticking by a set of investment rules. The rules vary depending on the individual but the outstanding factor is how they have been able to create great fortunes by 1) being patient and 2) becoming great at finding only a certain type of company to invest in.
My investing philosophy has been somewhat haphazard and a type of learning on the job arrangement that has developed over time, but I have picked up a few key lessons from these great investors.
#1 Invest in what you know
Peter Lynch is a great proponent of only investing in companies that delivered products he purchased or enjoyed. Warren Buffett, similarly, refuses to invest in industries that he doesn't understand.
I love this idea and therefore do not invest in oil and gas companies, but do invest in insurance companies like Insurance Australia Group Ltd (ASX: IAG) because I've worked in the industry.
#2 Make what others like your business
Warren Buffett one said something along the lines of "make what you like your work and make what the world likes your business". This implies that while you may not like the taste of the products made by Coca-Cola Amatil Ltd (ASX: CCL), investing in the business may be wise move because billions of people around the world drink its products.
#3 Only invest in companies with a moat
Many investors subscribe to the theory of the business 'moat'. The moat implies a sustainable competitive advantage that a company has over competitors or potential competitors. For some companies it may be the high capital cost in establishing the business, for others it will be protected IP, or it could even be the collection of data held by the business (think Facebook).
A great example in Australia of this is Crown Resorts Ltd (ASX: CWN), which has exclusive casino licences in Melbourne and Perth. These licences prevent competitors from stealing significant market share from Crown and are long-term agreements.
