Whether you are an early investor or a veteran, learning the basics of investing requires a long practice, failures, disappointments and success as well. Else, you can learn these from someone who has been there, and done that. They say that an average person learns from his mistakes, whereas a wise person learns from other’s mistakes.
In order to become a pro in investing, could one find a better person than Warren Buffett? Let us dig deeper into the key investing lessons the Oracle of Omaha has shared in his speeches and talks.
Key investing lessons to learn from Warren Buffett:
1. Buy at the right price: Warren Buffett often said that it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
This effectively means investment in a company with a formidable competitive edge —bought at a fair price — will be more fruitful in the long run vis-à-vis a company that has fewer chances of excelling in the long run. For instance, Buffett has invested in Apple, American Express and Coca-Cola, among others.
Meanwhile, his firm Berkshire Hathaway has recently now sold nearly half his stake in Apple. For more details, one can read this Livemint article.
2. Buy in bulk when prices are low: Warren Buffett believes in keeping massive cash in hand in order to make the most of an opportunity of low prices. He says when it rains gold, put out the bucket, not the thimble.
Notably, cash reserves of Berkshire Hathaway have now hit $277 billion. Before Buffett’s firm sold its stake in Apple, it was sitting on a cash pile of $189 billion.
3. Investing is more about managing emotions: Warren Buffett often said that investing is more about managing emotions. He used to say that one should become greedy when others are fearful, and fearful when others are greedy.
Put simply, when there is a bull run, it is alright to be fearful because a correction may follow and when everyone else is selling, it is the time to be greedy and buy at attractive price.
4. Wait for the right strike: He once compared investing to no-called strike game where investor does not have to swing at everything. “You can wait for your pitch,” he said, while explaining that one does not need to invest until you find the right opportunity.
5. Index funds are a good buy for retail investors: Unlike most professional investors, Warren Buffett is a great believer of index funds such as S&P 500 in US (or Nifty50 in India).
“If you enjoy investing, then do it, but most investors are going to be well served by using an index fund and especially by avoiding trading in and out of stocks,” he had advised.
6. Long holding period: Notwithstanding the sale of nearly half of Apple stock, Warren Buffett believes in holding stock for a long period. He said that investors should remain invested for long duration.
In fact, he stuck to the majority of his portfolio during the financial crisis, something he refers to as ‘economic Pearl Harbor’.
