Investing is a method by which you make your money work for you, while you are off doing other things. Warren Buffet, 91, is a businessman who has made consistently savvy investing decisions throughout his career, and, for this reason, he evokes veneration from would-be investors worldwide.
With a net worth of $112.1 billion, according to the Forbes, he has built a fortune as a multibillionaire with his prudent and far-sighted investments. The renowned investor defines investing as “the process of laying out money now in the expectation of receiving more money in the future.”
The primary objective of investing your money and assets is to put them into investment vehicles in the hopes of growing your assets over time.
Before you jump into investing as a newbie, there are a few things you must consider.
You must evaluate your investment goals and consider them in light of easy-to-follow deadlines. Every investment carries some risk, and the market is volatile, fluctuating a lot. You must know what your risk tolerance or risk capital is.
This means an evaluation of how much money you are willing to risk on high-risk, high-reward investments, or even in stable investments that can tank due to market volatility. Trained and certified financial analysts know a lot about wise investing. If you are studying to become one yourself then the Wiley CFA review course is a great place to start.
We frequently make investing more complicated than it has to be. Warren Buffett takes a straightforward, common-sense approach to trading and investment.
Here are some of the ever-relevant, timeless pieces of advice from the investment philosophy and life of Warren Buffet that newbie investors can greatly benefit from.
Invest in what you know
With the ever-expanding population and technology, there are a lot of companies and businesses present in the market. However, as an investor, you need to be very vigilant about where you put your money. Do your own research as well to learn more about other viable investment options, doing a quick online search by typing something like what is a holding company can greatly help expand your knowledge on investments that you can consider.
Warren says, “Never invest in a business you cannot understand.” This doesn’t mean we should not invest in new and upcoming areas of the market, just that we should proceed with caution.
Investing is not only about results, but it is also about the risks that come with it, and assessment of those risks depends on where the company stands. In the 1996 annual shareholders’ letter, he indicated that investors must have the “ability to correctly evaluate selected businesses,” which implies you must know when and where you are putting your money.
If you can’t attain a reasonable grasp of how a firm makes money and the major variables that affect it, you mustn’t act.
Be patient and think long term
“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” – Warren Buffett
Quality companies generate strong returns and grow in value over time. Time, as Warren Buffett put it, is the wonderful business’s best friend. Dealing in fundamentals can take a very long time to have an impact on a stock’s price, so only the most patient investors gain.
“Our favorite holding period is forever,” Buffett says. Investment returns are impacted a great deal by regular trading activity. Taxes and trading commissions deplete your returns when you’re constantly buying and selling stocks. Instead, you’re better off buying right and sitting tight. He says “The stock market is designed to transfer money from the active to the patient.”
Focus on the company
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” says Buffett.
While some investors focus on buying only the cheapest businesses, Buffet recommends focusing on companies with a strong business plan that can be sustained over time. Buying “wonderful” companies – those with a stronger economy and competitive position – is a better line of action than buying “fair” companies at excellent pricing.
However, a company with a strong competitive advantage will most likely keep making money over time, and it can help you out even if you buy it at an inflated rate. That may not be the case with a fair company, which may crumble and never return to your purchase price or higher.
Invest your own money
A very basic and simple rule when investing is, don’t borrow to buy stocks and don’t invest in stocks with the money you’ll need soon. There are many times when stock market greed takes over and many investors feel obliged to invest every penny to achieve maximum returns.
A strategic move is following your specified investment allocation through your existing monthly surpluses and existing investment portfolios.
Warren Buffet admonishes, “I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
You just shouldn’t borrow money to invest because the stock market is always risky and volatile, and if the situation changes, you will end up losing not only your investment but also your net worth because you will have to repay the borrowed money you used for investing.
Choose the right time
This is among the most common and well-known lessons, but it’s worth emphasizing: the stock market is never a straight line. There will always be ups and downs.
While some investors believe that investing is primarily about numbers, Buffett believes that investing is primarily about investor behavior. When investors become money hungry and drive stock prices to record highs, it suggests that you should be worried and fearful because a market plunge is likely to occur.
When investors flee the market or a particular stock, prices are lower. When stocks are cheaper, they don’t carry the same level of risk as when they are more expensive. Warren says, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
We too must think in this direction to avoid losses.
Bottom line
Warren Buffet’s words of advice for investors are timeless. There are multiple lessons to be drawn from Buffett’s investment philosophy and his life. Investors can avoid some of the usual pitfalls that damage returns and imperil financial goals by implementing Buffett’s investment strategies. By following some of Warren Buffett’s investment advice – putting the focus on the long term, being patient and cautious, staying within our circle of expertise, and choosing the right time – we can better manage our portfolios, reducing the number of costly mistakes we make and starting to move in closer to our goals.
