Few people know more about making money than Warren Buffett. He is currently the CEO of Berkshire Hathaway and is known for being one of the wisest, most successful investors around.
His decades of experience have taught him countless lessons and he is happy to share advice with future investors. Buffett’s timeless tips can help you avoid common traps, protect your financial goals and find success with long-term investments.
10 of Warren Buffett’s Best Investing Advice for Beginners
Only Buy Stock That You Plan to Have Forever
Buffett leads by example, holding a number of his investments for several decades. He believes that the value of the business will only increase over time and it could take years for things to fall into place. After all, rewards come to those who wait.
He also reminds us that constant buying and selling will eventually haunt you through trading commissions and taxes.
Invest in Something Only If You Understand It
Buffett believes that too many people spend too much time thinking about whether to invest in something or not.
If you have to think about it that hard, you probably do not fully understand it. He personally only allows himself 10 minutes to understand the industry and company and how they make money. If it takes longer than that for him to fully get it, he moves on.
This also relates to companies and industries in which success cannot be accurately forecasted, such as pharmaceuticals and fashion. The future of these types of industries are unpredictable and very complex, making them too risky to invest in.
Don Not Depend on Financial News
Buffett explains that the majority of financial news headlines and interviews are to cause a stir, which can cause investors to act irrationally.
He says that news outlets will often make small numbers into big news, making investors second-guess themselves and unnecessarily reevaluating their stocks.
Buffett emphasizes that especially if you are invested in a company that has been around for a long time – such as Coca-Cola, Johnson & Johnson, or GE – they will more than likely continue to be resilient in the changing financial climate. Don’t be fooled by news headlines.
Be Careful When Trying to Be Diverse
Many investor advices would encourage you to build a diverse portfolio. However, Buffett says that investors need to be confident and have faith in their choice of investments. Diversification happens out of fear that one type of stock will destroy an entire portfolio.
He explains that it can be difficult to keep up with what’s going on in every company and can make it difficult to focus.
Learn from Past Mistakes and Move Along
Investing is a risky business. Even greats like Warren Buffett have made massive mistakes, but he makes sure that he never forgets or repeats them. Buffett suggests keeping a journal of missteps and evaluating why things went wrong.
This will help investors avoid making the same mistakes in the future. Buffett also believes that it is your responsibility to share with others what you have learned through experience.
Price Does Not Equal Value
Do not always assume the price of a stock reflects the value of the company. The stock market is ever changing and the future outlook of a company does not always correlate with how much it is going for sometimes.
It often happens that a stock is selling for a bargain price because the company is going through a financial crisis. When many investors get news of a crisis, they will try to quickly sell their stocks.
But a lot of times, a company will grow stronger during hard times and end up being very successful in the future.
Do Not Trust Just Anybody
Buffett suggests being very particular about who to trust and invest in. Finding trustworthy connections is very important. There are many different types of personalities and characters in the financial world.
Some people with experience have learned ways to take advantage of others for fast money. Furthermore, just because someone calls themselves an “expert” does not mean they will always lead you in the right direction.
Do Not Invest with Money That You Borrowed
Buffett explains that it is just too risky to use borrowed money to invest in anything. Doing so could lead to devastating losses in the event of plunging stock prices. After all, a stock can fall dramatically in a very short amount of time.
Especially for newer, inexperienced investors, it is easy to become panicked by falling prices and this can lead to bad decisions – bad decisions that will affect other people’s money.
When You Own a Stock, You Own a Part of a Business
Buffett emphasizes that there is a lot to consider when buying a stock. It is more than just a piece of paper. You need to consider every aspect of that business and what affects it – competition, costs, prices, suppliers, etc. A stock is a piece of ownership involved.
Considering these factors about a business you are thinking about investing in will help you better understand the current state of things and whether it is worth it to you.
Believe In Yourself and Your Investments
Buffett says most beginner investors will constantly second guess themselves. It is difficult to trust yourself and your choices when you have not had much success yet. He suggests doing your research, looking at the facts and believing in yourself.
It is important to overcome fears and insecurities. If you believe something is not so popular with others, do not be afraid to stand on your own and make the tough decisions.
Warren Buffett’s pieces of advice offer a simple, straightforward approach to investing. It is easy to make something seem much harder than it has to be. He believes in sticking to the facts, looking at things with a long-term perspective and trusting in your abilities and decisions.
Decades of investing has allowed Buffett to learn from many mistakes, which have helped him become one of the most successful investors of his time. His experience and wisdom are sure to help guide many new investors for years to come.