Everybody knows about Warren Buffet because of his value investing and the wealth he created from the stock market. We as investors must follow Investment Advice by Warren Buffett to learn from his experience. The greatest investor Warren Buffett very nicely replied about his best investment advice
“When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.” He was asked about his best investment advice to everyone on his 87th birthday and this was his response which is true in some sense.
And why he said so because he believes that his experience is the ultimate key to being a successful investor. But experience is something that comes with the age and culture to which you are accustomed throughout those years. But what about those who are new to investing? Because every newbie will have ample space to learn about investing as they don’t have any experience?
But in today’s world, it is not so difficult and tiresome thing to have a thought process like great investors. It is possible only by listening to them and learning from their experiences. With the advent of technology, you can learn from the greatest investors like Warren Buffett and Peter Lynch at your fingertips.
So we will discuss 8 proven investment tips from one of the greatest investors Warren Buffett in this article:
8 Best Investment Advice by Warren Buffett
Everybody knows about Warren Buffet because of his value investing and the wealth he created from the stock market. We as investors have a lot to learn from his experience and here are some of the best investment tips by him for an investor:
1. Diversification isn’t always a good
Diversification plays an important role in balancing your portfolio but it is not always great to go for diversification. Sometimes diversification can cause loss or disorientation in the investor mindset and that is what Warren Buffet stressed. Many good investors stress the importance of diversification and how to do that. But Warren Buffett disagrees with the idea of diversification. He says that diversification is for people who don’t know much about investing or are new to it. An experienced investor should always choose stocks on a long-term basis and should have faith in his/her investments.
Maximum investors do diversification in their portfolios because they are afraid that one bad-performing stock might sink their entire portfolio or investment. But, while doing so, it becomes much harder to track the current events impacting each company. So, by diversifying, they might reduce the volatility of their portfolio, but at the same time, their mindset gets disoriented from all the stocks and they reduce their focus on individual investments.
Buffett waits for opportunities to buy good stocks, and when those opportunities come his way, he takes full advantage. According to Buffett, “When it’s raining gold, put out the bucket, not the thimble.”
2. Invest in yourself first
“The best investment you can make is in your own abilities. Anything you can do to develop your own abilities or business is likely to be more productive.”
Warren Buffett says that the best investment one can make is on his/her own abilities. Most people are not going to make most of their money from the stock market. They’re going to make it from their careers. So, put yourself first and pay yourself first.
The same thought is quoted by Charlie Munger who is a close partner of Warren Buffett. Munger’s secret to success is: Sell yourself an hour each day and use that hour to make yourself better.
3. Trust yourself that you will be a successful investor
Warren Buffett says that the hardest thing is to trust your investment decisions. It is hard to believe but it is right. We as human beings, always think that others are right and we are wrong. And when it comes to investment decisions, this particular thinking creeps in very frequently.
So, what we should do to overcome such nonsense is that we need to study and believe in ourselves. We must overcome mental blocks such as greed and fear and should pay no attention at all to what others are telling us. Gaining knowledge and making ourselves empowered is the one-stop solution for such mental barriers. Your investment decisions must be backed by your firm belief of yours and belief will come only when you have studied the investment decision you made.
4. Invest in what you understand
Investing in any stock or company which you don’t understand, is a disastrous decision you ever make in financial life. Hence, we must invest only in those companies whom we understand as it will generate faith in our investment decisions. Warren Buffett says that many people think quite a bit before making any investment – and sometimes think TOO much.
Warren Buffet says that before he invests in the stock of a company, he has to first understand how the company makes money and the main drivers that impact its industry in no more than 10 minutes. If he’s not able to understand it in 10 minutes, he moves on to evaluate another company on this basis.
Most people can’t predict the next fashion trend among teenagers or whether the medicine will succeed in the market. Even if you had more data than anyone else, it’s still impossible to predict the future of the stock market with 100% accuracy. Buffet cautions investors to remain away from such investments which rely on an accurate forecast of the future.
Buffet once said that out of about 10,000+ publicly-traded firms, he would like to invest in only a few hundred companies – before even taking valuation into account!
5. Every news is not for you
In today’s world, getting access to any news is not much difficult. And one of the best investment tips from Warren Buffett is to not put too much stress on the news about the stock you are owning. Because every piece of news is not for you, and if you think that you have access to really a piece of insider news, be sure that this news is made to reach your ears and it is not really insider news at least as of now.
Warren Buffett believes in the 99-1 rule when it comes to news segments. He says that most investors take action based on 1% of the financial news they consume. Doing so, they quickly sell their stocks whenever bad news comes up – e.g. a company’s revenues have fallen by 10%.
6. You are Buying a Business and not just a Stock
Warren Buffet firmly believes that investing in any stock is not like purchasing a share but owning part of that Business. By having a share in any company, you are directly gaining a partnership in that business. But maximum investors don’t think so take their investment on a lighter note.
Once you start taking your investment as a partnership in that business you will automatically start thinking about the competition, suppliers, prices, etc. You will start taking decisions by considering that it is your own business and everything which affects that business will also affect your investments. When you buy a stock, you’re not just buying a piece of paper or a ticker symbol. Buying the stock of a company is buying an ownership stake in a business.
7. Learn from your mistakes
It is very important to learn from mistakes and if you are learning from the mistakes of others, you are already half a way ahead of other in your competition. You might be surprised to know that investors like Warren Buffett also make mistakes. But he makes sure that he learns from his mistakes and never repeats them again.
Warren Buffett advises keeping a record of the mistakes you’ve made so that you know what went wrong and make sure you don’t repeat them again. He also stressed one thing you should share these lessons with your children and grandchildren so that they know what mistakes not to commit.
8. Intraday trading… No
According to Warren Buffett, the secret to getting a better return on investment is to buy a stock and forget about it. He believes in having a buy-and-hold mentality and insists on holding stocks for decades.
There are two principles behind this:
(1) if you buy a stock for less than its true worth, the stock’s price will eventually converge with its intrinsic value; and
(2) if you buy a wonderful business, the value of that business will compound and increase exponentially the longer you hold on to it.
So, the patient and disciplined investor will ultimately be rewarded if they hold on to their stocks for a longer time frame. For Buffett, time is the friend of a wonderful business.
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for ten minutes.”
He says that if you constantly buy and sell stocks, it’ll take away a significant percentage of your returns in the form of trading commissions and taxes. So, it’s better to buy great stocks and hold them for a long time.
The Investment ideas shared by Warren Buffet can make wonderful changes to your portfolio if you have understood them all. The key to wealth generation is a long-term investment and long-term investment may be in equity or in mutual funds. Because the power of compounding will make wonders with your investments only in the long term.
You may also like to Read:
- What are Mutual Fund investments?
- Why are people afraid to invest in the Stock Market?
- Why the mindsets of successful Investors are different from others?
Warren Buffet is known for his value investing and the wealth he created from the stock market. We must follow his Investment Advice to learn from his experience. Because great investors have one thing in common they waited for a long and valued their time and investment decisions.