Warren Buffett became a multi-billionaire and one of the world's wealthiest people by religiously following some very straight-forward strategies to guide his value-driven investment decisions and build his portfolio.  Warren Buffett is often called the "Oracle of Omaha" and is noted for his adherence to the value investing philosophy.  These are 10 guiding principles to invest like Warren Buffett, the prototypical value investor.

Illustration by New York Times

 RULE #1:  BE CHEAP
          If you are frugal in the way you live, this behavior will pervade your investment style and allow to you save and invest more money.

RULE #2:  BE PATIENT
          Wait, wait, wait for the right time to buy.  The most patient investors are the best prepared for opportunities when they come, e.g. market turbulence brings stocks of great companies to trade at very cheap valuations.

RULE #3:  GO AGAINST CONVENTIONAL WISDOM
          Attempt to be fearful when others are greedy and to be greedy only when others are fearful.  Going against the crowd can be an effective way to make money.

RULE #4:  STICK TO WHAT YOU KNOW
          Stay within your circle of confidence.  If you don't understand what a company does or how it makes money, you should avoid it.

RULE #5:  BE SELF-CONFIDENT
          You must be able to act without affirmation from others (or the market) on your investment decisions.

RULE #6:  BUY COMPANIES CHEAP
          Warren Buffett is a true value investor.  Buying companies cheap is what being a value investor is all about.  Purchase stocks below their intrinsic value and fill your portfolio with these companies.  Ignore earnings per share [EPS].  Look for solid return on equity [ROE], operating margins, and low/no debt.  Also, look for companies that generate a lot of cash and have consistent operating history over a long period of time (greater than 5 years).

RULE #7:  BUY COMPANIES WITH COMPETITIVE ADVANTAGES
          Warren Buffett calls this an "economic moat" which gives a company barriers or protection from its competition.  Examples of sustainable competitive advantages include high capital costs to enter a business, a strong brand identity, patent protection, economies of scale, etc.

RULE #8:  BUY BIG POSITIONS
          Combine patience (Rule #2), going against the crowd (Rule #3), self-confidence (Rule #5) and buying cheap (Rule #6), and it puts you in a position to bet big.  Traditional investment strategy advises to minimize exposure to risk with diversification.  But, when Warren Buffett likes something, he buys big... and these bets pay off.

RULE #9:  BUY AND HOLD... FOR A LONG LONG TIME
          This doesn't mean buy stocks and forget about them.  Tracking performance is key and so is getting out when necessary (stocks are over-valued, trouble is in the horizon, etc).  In a nutshell, invest only in companies that will outperform for decades.  Follow this approach and you will gradually develop an outstanding stock portfolio like Warren Buffett.

RULE #10:  BELIEVE IN AMERICA
          Warren Buffett has faith long-term prosperity of U.S. companies.  This allows him to make investment decisions that are NOT based on where we are in economic cycles.



Of course, the best way to see these rules in practice is to study Warren Buffett's Berkshire Hathway portfolio holdings.