As far as investors in the world go, there is perhaps no one more famous than Warren Buffet. The legendary American investor has made a massive fortune by investing in the right places at the right time. His journey has been far from flawless and he has made mistakes as well. Like any great achiever in history, Warren Buffet learned from those mistakes and scaled even greater heights in his career. Whichever kind of investment you make, whether it’s in property, stocks, bonds, crypto like bitcoin, ekrona, ethereum etc. or gold, Warren Buffet’s advice will go a long way in helping you achieve your financial goals through your investments. Without further ado, let’s get started.
Warren Buffett’s Investment Tips
Invest in what you know
The easiest way to make a mistake is to turn to overly complex investment options.
Most of us spend our careers working in a handful of different industries. Therefore, it is likely that we have sufficient knowledge about the mentioned sectors and we know more or less the best companies in this field.
On the other hand, the majority of companies open to investment operate in sectors about which we have little or no information.
Never invest in any business that you do not understand. – Warren Buffett
Although this does not mean that we cannot invest in these areas, we must be extremely careful.
When faced with a business with a very complex operational style, simply bypassing is the most reasonable option.
While there are many options in the market, there is no need to be stuck with companies or sectors that are extremely difficult to understand and predict. For this very reason, Warren Buffett has never invested in any technology firm throughout his career.
Never Compromise Work Quality
While it’s clear to take the stance we’ve mentioned towards complex businesses and industries, identifying high-quality businesses can be quite challenging.
Warren Buffett’s investment strategy has changed and evolved over the years, gearing towards high-quality businesses that are hopefully growing steadily over the long term.
Well-versed investors will be surprised to hear that the Berkshire Hathaway investment is Buffett’s worst investment.
Berkshire was in the textile business and Buffett bought it because he found the price affordable. Buffett had these thoughts when investing in this company: If you buy any company at a low enough price, even if the long-term performance of the business is bad, one day a suitable opportunity will come up and you can get rid of this investment by making a profit.
After years of experience, Warren Buffett concluded that this type of investment is simply folly.
These low-priced investments that you think you’ve closed for cheap actually don’t come cheap. In such challenging businesses, before one problem is solved, another one emerges and the investment slowly dissolves due to low returns.
Diversifying isn’t always the best
Individual investors earn most of their earnings by investing in stocks in many different industries.
Warren Buffett has the opposite of this approach. In the 1960s, as much as 35 percent of Buffett’s portfolio was in a single company.
Simply put, Buffett invests by acting as he believes and knowing that the markets are not so generous in offering successful buying opportunities at a good price.
“Opportunities come your way at indeterminate intervals, and when it rains gold from the sky, you have to stop calculating and invest.” – Warren Buffett
On the other side of the coin, there are investors who diversify their investments with the self-confidence that comes from ignorance or courage. Owning a hundred different stocks makes it impossible for an investor to monitor developments and assess the impact on their investments.
Excessive diversification also means many mediocre investments and will only reduce returns from successful investments.
Diversification is a safeguard against ignorance and means little to those who know what they are doing. – Warren Buffett
If you own more than 20 shares, you should sit down and focus on thinking seriously and choosing the best among them.
Only buy shares that you feel like you can hold forever
When a high-quality business is acquired at an affordable price, how long should these shares be held?
If you don’t intend to hold a stock for 10 years, don’t hold it for even 10 minutes. – Warren Buffett
Warren Buffett has a clear buy-and-hold mentality, and some of the stock he owns has been his for decades.
So why? First of all, finding a successful and open-minded business, in the long run, is a difficult task, and that’s why Buffett manages a scrutinized portfolio.
Moreover, quality businesses have high and ever-increasing returns over time. Just like Buffett said, time is a friend of successful businesses. Fundamental values take many years to influence share prices, and only patient investors win the prize.
In addition to these, continuous trading consumes continuous investment with factors called taxes or commissions. Therefore, making a good purchase and sitting back is the most logical strategy.
The stock market is a tool that takes money from the impatient and delivers it to the patient. – Warren Buffett
Don’t listen to all “news”
The 80-20 rule claims that about 80 percent of the results can be attributed to 20 percent of the causes of an event.
When it comes to financial news, one can argue that the rule is 99-1. 99 percent of the investments we make can be attributed to only one percent of the news we read. The majority of the news we see in the news or in the newspapers consists of noise and tries to activate it by targeting only our emotions.
The companies that you should focus on and take into account are the companies that have tested against time and have been successful. Many have been around for over a century and have been tested against many unimaginable challenges.
News texts have been published on how many times these companies ended or took to the skies during their lifetimes. But they are still standing.
Investing isn’t rocket science, but don’t look for shortcuts
One of the most widely believed myths about investing is that only people with advanced knowledge can make the right choices.
On the other hand, it is almost impossible to make an investment decision with intelligence alone.
You don’t need to be a rocket scientist. Investing is not a game where a 160 IQ person can beat someone with a 130 IQ. – Warren Buffett
It doesn’t take a genius to use Warren Buffett’s investment philosophy, but staying ahead of the markets on a regular basis and avoiding instinctive mistakes is a challenge.
Just as important is knowing that there are no magic rules or an easy shortcut to stay ahead of the markets, and there never will be.
Only listen to people you know and trust
In his texts and interviews, Buffett emphasizes investing only in reliable and knowledgeable teams.
To put it bluntly, Buffett chooses his working partners very carefully. Their behavior can make an investment succeed or fail in the long run.
“When management acts indifferent to the interests of shareholders, shareholders face the consequences for many years to come.” – Warren Buffett
Because Warren Buffett is more involved in this business than almost anyone else, he knows he has much clearer and more accurate information about who is more successful and more reliable.
While making these choices is more difficult for us, we can choose who we listen to when making an investment decision.
The financial world contains many good and bad characters. Unfortunately, many also use investors’ fears and unrealistic expectations to treat them as prey.
Boring moves are good
The stock market isn’t a shortcut to immense wealth. At its best, the stock market is a long-term study in which the most ideal or medium level investment can be enlarged.
Investing is not expected to be exciting. It is much wiser to invest in companies that have already proven their worth, rather than start-ups that can make big profits.
“We are not trying to choose a few investments that will pay off among the many options. We’re not smart enough to do that, and we know we’re not.” – Warren Buffett
Ultimately, the goal is to find quality businesses that will generate long-term returns. If we can do this properly, the return on our portfolio will save itself.
“Beware of investments that are met with applause. The best investment behaviors are often boring.” – Warren Buffett
Price and value are different
Share prices come up all the time. For some reason, traders take values on the chart seriously.
But at times, almost no connection can be made between share prices and the long-term value of the firm.
In times of financial crisis, many papers can be bought cheaply because investors are quick to sell and do not look at the quality or potential earnings of the firms.
Many firms continue to strengthen during downturns and make their potential much brighter, thanks to the values that make them stand out from the competition.
As long-term investors, we should heed Warren Buffett’s investment advice and buy quality investments when prices drop.
Share prices change with investors’ mood, but that doesn’t mean the firm’s future cash flow depends on it.
While discussions continue about the firm’s future cash flow, the disputes are often too petty to compare with price changes.
Investors must be able to distinguish between price and value. They should focus their efforts on getting quality investments at affordable prices.