"Rule # 1: Never lose money; Rule # 2: Never forget rule # 1. "
When I first came across this advice, I thought well geez... "that's pretty useless, of course I don't want to lose money, but how do I make sure I don't lose money?"
Now after looking at hundreds of different businesses, my investment process revolves around this vague folksy wisdom (this does not mean I never lose money). Nearly all of my time when looking at an investment is spent on how can I lose money in this investment / what can change in this business going forward? My usual reasons includes I don't understand the business (banks, pharmas, tech, resource based), too much debt, too expensive, too cyclical, too close to its cyclical peak, too big and complicated, and of course too competitive - when you have over 20,000 companies in North America alone, you can be quite liberal in rejecting investments.
Buffett himself has exemplified this philosophy better than anyone else - a 58 year investment career with only 2 negative years is simply mind boggling. Thinking about his investment process of - ultra-long-term time horizon or permanence, high concentration, buying quality, Saint-like patience - all are geared around avoiding losers, not buying multi-baggers although that may be the result, but first and foremost on avoiding losers. Even in his early days of buying cigar-butts and work-out situations, Buffet was doing just fine avoiding losers - in his 1963 memo titled "The Ground Rules", he reported his partnerships total realized gains to loss ratio over its 6-year existence to be "something like 100 to 1".
"Use your [investing] edge."
Once again, when I first came across this advice I thought, hmm what is my investing edge? Am I smarter? Harder working? Copying smarter people? The first two are debatable.
But once again this advice has become a cornerstone of my thinking. Again let me use Buffett's folksy wisdom to explain - "If you have been in a poker game for a while, and you still don’t know who the patsy is, you’re the patsy." - I'm always looking for a reason why I believe this stock is cheap and why others are not taking advantage. It is very helpful in weeding out ideas. The most common (most important) edge is simply having a longer time horizon than others. But coupled with lets say undercovered companies that institutions can't invest in (too small, post-bankruptcy, spin-offs), misunderstood businesses (M&A, conglomerates), or out of favor industries, the opportunities can be enticing.
Other tenets could include:
"Price is the primary determinant of risk and returns"
"Investing is most intelligent when it is most businesslike."
"Learn from and copy success"
I think those are pretty self-explanatory.