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The Secret of Your Success

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."  Wise words from a wise man, indeed. While Buffett may have the capital to buy companies and you're lucky if you can buy a handful of stocks, heed this simple advice while planning for retirement and you'll go far!

 Buffett recommends investors look for companies that deliver excellent return on capital and produce substantial cash profits, all while paying a fair price for them. This is far better than getting a really good (and often cheap) deal on something that produces much less.

He also says that recognizing when you've got a fair price for a wonderful company requires patience. Ultimately, he believes that "value will in time always be reflected in market price." According to his methodology, when the market finally recognizes the true worth of your holdings, then you begin to earn solid returns. And remember, you're in this game for the long haul! Financial success takes time, so don't worry if you don't see those returns right away.

They say the sincerest form of flattery is imitation, so we say watch out for what Buffett invests in. If it seems reasonable to you, give it a try. At the very least, you'll become more aware of what are considered great companies at reasonable prices, and what are considered fair companies at great prices. Learning the difference can help with your own investments.

Does Buffett's advice make sense to you? Do you think that it's a good way to make money? [Motley Fool]

Posted: 6/3/08