2. Buy Undervalued Stocks

Buying under-valued stocks might seem like the wrong decision in the first go but you need to look into the essence of it. An undervalued stock is one which is being sold at a price below its true intrinsic value. An investor can evaluate an undervalued stock by evaluating the financial statements of a company. These statements include - capital management, profit retention, return on assets and cash flow. This way you have to pay less to buy a potentially good stock.

Though this method might not predict the course of a stock accurately all the time, it still helps you with a sound and Buffet-tested method. Buffet uses the ‘Net Present Value’ equation to determine the elusive intrinsic value of a business venture. Buffet explains the term by calling it "the discounted value of the cash that can be taken out of a business during its remaining life." In other words, it means the actual value of the company in all its spheres, including tangible and intangible factors.