When Warren
Buffett offers investing advice, everyone listens. The world’s greatest
investor has never been shy about the strategies that have helped him
amass a $72 billion net worth and grow his company, Berkshire Hathaway,
into a juggernaut valued at over $212 billion.
But one thing he doesn’t
do is
encourage the average individual investor to try to mimic his
success. The best advice he can give those investors, Buffett has said,
is to do exactly the opposite. As Yahoo Finance gears up to livestream the company’s annual shareholder meeting April 30, we’ve
parsed through some of Buffett’s more popular insights on investing to
come up with a few that apply to the average worker looking simply to
invest for long-term, steady growth.
1. The worst investment you can make over time: cash.
We
always keep enough cash around so I feel very comfortable and don't
worry about sleeping at night. But it's not because I like cash as an
investment. Cash is a bad investment over time. But you always want to
have enough so that nobody else can determine your future essentially.
2. Invest in a broad-based index fund that tracks the S&P 500.
If
you are a professional and have confidence, then I would advocate lots
of concentration. For everyone else, if it’s not your game, participate
in total diversification. The economy will do fine over time. Make sure
you don’t buy at the wrong price or the wrong time. That’s what most
people should do, buy a cheap index fund, and slowly dollar cost average
into it. If you try to be just a little bit smart, spending an hour a
week investing, you’re liable to be really dumb.
Recommended
reading: “Common Sense on Mutual Funds: New Imperatives for the
Intelligent Investor” by Vanguard founder Jack Bogle. Any investor in funds should read [Bogle’s books]. They have all you need to know.
“The
best investment you can make is in your own abilities. Anything you can
do to develop your own abilities or business is likely to be more
productive.”
4. If you’re determined to pick stocks, don’t buy into a business you don’t understand.
[Individual
investors] ought to think about what he or she understands. Let's just
say they were going to put their whole family's net worth in a single
business. Would that be a business they would consider? Or would they
say, "Gee, I don't know enough about that business to go into it?" If
so, they should go on to something else.... There are all kinds of
businesses that [longtime partner and vice chairman of Berkshire
Hathaway Charlie Munger] and I don't understand, but that doesn't cause
us to stay up at night. It just means we go on to the next one, and
that's what the individual investor should do.
5. Focus on the competition as well.
[Buying
stock in a company is] buying a piece of a business. If they were going
to buy into a local service station or convenience store, what would
they think about? They would think about the competition, the
competitive position both of the industry and the specific location, the
person they have running it and all that.
6. Invest for the long haul.
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for ten minutes”
7. The hardest part about investing: trusting yourself.
You
need to divorce your mind from the crowd. The herd mentality causes all
these IQ's to become paralyzed. I don't think investors are now acting
more intelligently, despite the intelligence. Smart doesn't always equal
rational. To be a successful investor you must divorce yourself from
the fears and greed of the people around you, although it is almost
impossible.
No comments:
Post a Comment