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Using Warren Buffett's Investing Principles in Your Amazon FBA Business

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Warren Buffett’s investing advice is timeless and many of his principles can be applied beyond evaluating Wall Street firms.  But you may think that because Warren Buffett doesn’t invest in Amazon FBA businesses, he may not have anything of value to add to help you with your Amazon FBA business.  The fact of the matter is that Buffett invests in what makes money and by thinking about what he is searching for in the businesses he courts, you can make some profitable changes in your methodology.

Rule #1 Margin of Safety

Warren Buffett
It is said that the 62 Billion Dollar Man only has two rules of investing: Rule #1: Don’t Lose
Money and Rule #2: See Rule #1.  While these are far from the only investment rules he follows, they are primary keys to his success.  When sourcing products for your Amazon FBA business think about your margin of safety, or the product price difference between what you are paying and what you think you can sell it for.  The larger that number the better.  Why?  Because things happen that will eat into that profit.  For example: fees, administrative costs, and price fluctuations.  Amazon requires you to not only pay to have your products shipped, but also charge hefty fees when your product sells.  Make sure that you have an idea of a built in margin you are seeking (with a good place to start being selling at a price of 3 to 5 five times what you are paying for the good). 

Rule #2 Make Informed Decisions

 The Oracle is famous for being able to memorize a company’s Balance Sheets from previous years and it is well-known that he is always looking for quarter to quarter increasing earnings.  While hunting for product, you will rarely find items that are going up in value, but it is important that you use the data available to assess whether a product’s price is holding over a number of sales.  This can usually be found in the form of a graph by making an additional click on your scanning app.  Other bits of useful data is to look at the number of sellers who are also selling that product and the total number of products ahead of your price point.  Looking at the metrics will give you an edge in deciding whether or not to be a seller of the product.

Rule #3 Buy Like an Owner

Warren Buffett evaluates companies as if he were going to buy the entire company.  He does not look at buying 100 shares of 5,000 different companies, but rather buying as many shares as he possibly can of a few companies.  This should be your mantra.  When you come across a tremendous deal that you have done your due diligence research on, pull the trigger!  If that means buying a large bulk of an item do it and do it confidently.  Very few can claim success that were only willing to buy the bare minimum of a profitable product for FBA.  Likewise, it is so much more difficult and time-consuming to try to sell a minimum amount of maximum number of products, rather than a maximum amount of a minimum number of highly profitable products.

Rule #4 Invest the Earnings

Amazon FBA
It is tempting after a big score to use the earnings of your business to purchase something nice for that special someone or have a well-deserved night on the town to celebrate.  But be clear, whatever earnings you take out of your business serve to stunt its future growth.  The Oracle of Omaha has been quoted many times referring to his preference of reinvesting the earnings in a business.  If the business cannot profitably reinvest the earnings from its business, then he prefers that the business give him the earnings and he will reinvest them in another venture.    He also is not afraid to have cash on hand.  It doesn’t hurt for you to think the same way.  If you cannot source Fulfillment By Amazon items at the moment, don’t think twice about keeping the money on hand to purchase large quantities when you do come across them or put the earnings in another profitable venture of yours.

Wrapping Up

Lastly, be patient!  Buffett provides the blueprint for successful businesses by looking at his applicable tenants. One of which is patience (he is known to spend a good amount of time at the office playing bridge to pass the time).  As far as businesses go, The Oracle only buys the best, so if you view structuring your enterprises by his rules you can’t help but to be successful.

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Comments

Apr 9, 2014 5:50pm
moronkee
Thanks, I've gained some insight in this article. I trade on Amazon so, how can I reduce the hefty fees they charge when I sell products? Thanks
Apr 10, 2014 4:43am
NHalden
A couple of things to consider: Make sure you are a Pro Merchant if you sell more than 40 items per month and consider packing and shipping yourself on some lower priced items where the competition is not using FBA. It all depends on your situation.
Apr 12, 2014 5:25am
jny986
Great Article. It has caused me to think of ways that I can make money with Amazon FBA. One little tip do not use abbreviations till you have spelled out what it is. Some are unfamiliar with the abbreviation.
Apr 14, 2014 10:10am
NHalden
Thanks for the suggestion. I will make the edit!
Apr 14, 2014 5:17pm
jny986
Not a problem.
Apr 13, 2014 11:00pm
spragusa
Nice article. I know a lady who sells on FBA, she makes a ton of money off clearance goods.
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