This is the most important post that I have written so far. I’m going to tell you what it is that the top 1% of investors do that the other 99% don’t do. However, when I tell most people this “secret”, they usually don’t except it as true. Why? It’s because this “secret” is actually not vary secret at all, it just difficult to accept.

Most of the best investors are value investors, but not all of these value investors are in the top 1%. So what the difference between the good investors and the not so good investors. Here’s the big “secret”…

Great investors think differently.

Great investors think differently than everyone else…. This makes sense because an investor who thinks differently probably acts differently and therefore he or she gets different results (like being in the top 1%)

Here are the four biggest differences in the thinking of a great investor when compared to the thinking of the rest of the world.

1. A great investor is buying part of a business when they buy a stock.

This of course is true in a legal sense, because when you own stock in a company you literally are one of the owners of that company. If you can understand, I mean really understand, this one thing about investing, that buying a stock is buying a partial ownership in a

company you will be better than most of the investors in the world. However, most people forget this, most people don’t focus on the value of the business they own, most people focus on the movement of the stock price. Which brings me to point number 2.

2. Price is different from value.

In the stock market price and value do not always move in sync, but in the long run they will always converge. Remember, price is what you pay, and value is what you get. For some crazy reason people seem to understand this everywhere except on Wall Street and in investing, where everything is backwards. In the real world people love to buy things when there on sale. They will say “We should go shopping for furniture this weekend because of the clearance sale!” However, when there is a stock market decline creating a clearance sale for many businesses people are actually afraid to buy. This is like saying that you only shop at places when their is no sale.

3. Risk is in the value not in the price.

To a great investor the real risk of buying something when it is on sale is the possibility of buying a lemon. So when you go to the furniture store and your looking for a new bed on clearance sale, the real risk that you run is buying what you think is a great bed at a great price only to later have it fall apart in the middle of the night when you are trying to sleep on it. The same thing goes for the stock market, the risk you have is that you might buy a good company at a good price only find out that it is not such a good company.

4. A great investor doesn’t try to predict the future.

If you go to the furniture store and see the perfect bed that you have always wanted and it is selling at a bargain price should you buy it? Probably, at least if you are a great value investor. But most other investors would look at the bed and say “well it is 50% off last year’s price, I don’t think I’m going to buy it, because it will probably continue to fall in price” (trying to predict the future). Sometimes these other investors will be right and the price of the bed will be marked down farther, other times they will be wrong and all of the beds will sell out at the 50% off price, and the bargain will be lost. This is what usually happens to these “other” investors. They usually miss out on the bargain, because they are trying to time their purchase, so they can buy at the absolute the bottom price, but before they can, all the beds sell out and they haven’t bought one. Then they end up paying full price for a bed from the new set of beds that come in.

In investing, don’t try to predict the future. Remember if you can buy a great product at 50% off or more than its actually worth, is that risky? No, you will probably end up will a bunch off products that you love and you will still have money to spare.

So truly value investing is easy in the real world. It’s simply finding bargains. However in the stock market people seem to forget what investing is all about. I mean we are all used to seeing various products everyday and we know what they are worth. We know how much a certain car should be worth, or how much a pizza costs. Many people know how much a new pair of a Nike’s should be, or how much an iPod is. But in the stock market people mess up, because they don’t know how much the entire company of Nike should cost or how much the entire company of Apple is worth.

But don’t worry valuing a company is not any more difficult than valuing a product you use, despite what Wall Street and other investors tell you. How to value a company is the kind of information that I will be writing about in future posts. But this post had to be written first, because it is your mindset that will make all of the difference in investing.

You don’t have to be a genius to value a company or to make money in the stock market, but you do have to think differently than the rest of the investors out there.

If you can simply think of investing the same why you think about shopping for a bargain you are way way way ahead of most other investors. (by the way, this is how Warren Buffett and other great investors think, hence the title of this post “How to Think Like Warren Buffett”)

Just remember if you can buy a business for less than it is worth, you will grow your money.

Thanks for reading!