The Best Warren Buffett Investment Advice
Even an amateur investor can become an expert like Warren Buffett!
Not everyone will become a billionaire as a result of their stock market investments. But, everyone can benefit from following these tips from someone who has seen it all.
Amateur investors do not need an investment manager
Contrary to what some people might tell you, you do not need an investment manager to be a successful investor. In fact, you’ll probably be better off on your own!In 2005, Buffett made a bet with an investment manager. He believed that amateur investors would be better off investing in unmanaged, low-cost index funds rather than working with an investment professional.Buffett argued that investments managed by professionals would underperform investments made by amateurs who “simply sat still.”
According to The New York Times, Buffett was correct. In February of this year (2017), a standard SandP index fund was up 85 percent. On the other hand, a hedge fund had a return of just 22 percent.
The reason for the underperformance of hedge funds has to do with the high fees that investment managers receive. These fees take away from the overall return that an investor could have made going at it alone.
Don’t invest in a business you don’t understand
One piece of Warren Buffett investment advice you should always remember is to “never invest in a business you cannot understand.”
Recognizing the name of a business shouldn’t be the only reason you invest in it.Think about the industries you have worked in, and focus more on companies within them that you know well.This practice will serve you better than making a complicated investment in an area you’re unfamiliar with. When you understand the business, you’ll be better able to predict the market and interpret trends.
Focus on business quality
It’s also important to invest in high-quality businesses that will be around for a long time. This is, of course, easier to do if you are investing in businesses that you understand well.Remember, too, that stock in a quality business might cost you more up front. This shouldn’t deter you from buying it, though.Even if you have to spend a little more money on the stock from a higher quality company, you are going to be better off than if you bought the cheapest stock you could find.As Mr. Buffett put it, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Make long term investments
As stated in the first piece of advice, it’s better to let investments sit than it is to constantly be buying and selling. This practice racks up fees and eats away at your overall returns.It’s important to think towards the future when buying stock and only invest in companies that you believe have long-term potential.Buffett once said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for ten minutes.”Focusing on quality companies that you understand will help you be more comfortable with long-term investments. If you know the market and are confident in these companies, you won’t be as easily upset by the inevitablevolatility that comes with being an investor.
Investing is not always exciting
When it comes to long-term investment, remember that the process is not always exciting.Investing in the stock market is not going to help you get rich quickly. Instead, you will be growing your existing capital modestly over a long period of time.Patience is a virtue, especially where investment is concerned. Don’t get swept up in buying and selling and trying to predict the next big winner. It’s exciting in the moment, but you’re better off investing in proven companies and letting your money slowly increase over time.If you’re struggling with patience, remember what Buffett has said about the greatest investment moves usually being the most boring ones:”Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
Understand the difference between price and value
Remember that a business’s overall value and long-term earning potential is not always reflected in its stock prices. Prices go up and down, but the value of a company doesn’t always match these changes.Buffett put it best when he said:”Price is what you pay. Value is what you get.”Buffett also warned against selling “solid businesses” with good long-term prospects during a poor financial climate. During downturns, many businesses actually work harder to make themselves more competitive so that they will have a bright future when the crisis ends.Bottom line: If you invest in high-value companies, you’ll be in a good position no matter what happens in the economy.
Investing can be confusing and stressful.It’s hard when you have multiple people trying to tell you what to do. It’s even harder when you’re also reading headlines from financial magazines and hearing constant conversation about the stock market on television.When you’re feeling overwhelmed, remember this piece of Warren Buffett investment advice:”To be a successful investor, you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.”It won’t be easy at first, but over time you’ll learn to tune out the chatter and trust your own judgment.
After learning what Mr. Buffett has to say, are you ready to get a better handle on your own finances? Our investment calculators are the perfect resource to help you get started!Feel free to contact us if you need any help along the way, and check out our other blog posts for more information about putting our Warren Buffett investment advice to use!