Currently ranked as the fourth wealthiest person in the world, Warren Buffett is arguably one of the most talented and successful investors of all time. He personally doesn't believe that one needs to be highly intelligent to be a good investor (which is perhaps a show of humility on his part) but his generously-shared advice is both clever and simple.
1. Buy stocks with the long term in mind
“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”
For Buffett, patience is a virtue, and an important one! It's highly tempting to buy a stock hoping to sell it as soon as possible, particularly for young investors, but this mindset can very easily lead you to impulsively invest in businesses not worth pursuing. Buffett says it's best to invest in a high quality business that you can expect to have an "enduring competitive advantage". Do your research about the business and assess the longevity of their selling points.
2. Don't just focus on the price
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Buffett advises against a blind obsession with the price of the stock. There is a tendency to buy cheap stocks without properly thinking about how worthwhile the business is. You should not buy a stock solely based on whether or not you think the price will go up soon, but rather on the actual quality of the business you are investing in. Again, this links back to thinking about the long-term.
One way to check yourself, as per his recommendation, is to write out why you want to invest in this business, before you buy a stock. He says that you should have a very good reason for buying it, without referencing the stock's price or any other external influences such as news headlines.
3. Don't Be Swayed
“Remember that the stock market is a manic depressive.”
By 'manic depressive', Buffett refers to the ups and downs of the stock market that are further dramatized by financial news outlets. He warns to not be provoked to hastily buy or sell stocks, based on headlines or figures. Although the facts and statistics may very well be true, it is crucial to do your own research and make a level-headed assessment of the business' actual long-term trajectory, rather than make rushed decisions based on a short term dip or spike.
4. Don't be a Blind Follower
"Be fearful when others are greedy, and greedy when others are fearful.”
Don't buy the stocks that everyone else is buying as it may very well be that that stock is overvalued. In fact, Buffett encourages to actively seek out undervalued stocks - not cheap stocks, but stocks that are appropriately priced for their value. These may not necessarily be 'popular'.
5. Keep it Simple and Secure
"I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will.”
“Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.”
Buffett's two most profitable investments have been in soda company Coca-Cola, and chewing-gum company Wrigley. He didn't invest in them because he thought that they would become the "next big thing", but because their business models were simple, and he truly believed in their long-term durability and progression. He says that you shouldn't invest in businesses that you can't understand. If you don't have a good grasp of the way they work, then you cannot possibly gauge the course of their growth (or lack thereof!).
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