Warren Buffett is widely acknowledged as one of the greatest investors of all time. Known as the “Oracle of Omaha”, Buffett developed his wealth as a value investor, purchasing undervalued stocks with sound fundamentals for a discounted price and then holding them as long-term investments.
As the chairman and CEO of Berkshire Hathaway, Buffett has offered willing listeners many helpful pieces of advice when it comes to investing.
So, read on to discover 10 of the best investment tips from one of the most popular and respected investors in the world.
1. Never lose money
One of Buffett’s most famous tips is “never lose money”. In fact, he once said: “The first rule of an investment is ‘don’t lose money’. And the second rule of an investment is ‘don’t forget the first rule’. And that’s all the rules there are.”
With any investment, there is always an element of risk involved, meaning that your investments could increase or decrease in value. So, if you do lose money, it’s important to compare the relative returns of your investment portfolio to a similar target over the same period of time. That will enable you to see if your losses are out of line or not.
2. Don’t bet on individual stocks
As an incredibly successful investor, Buffett is strongly against the practice of stock picking, stating: “The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P and to do it consistently, and to do it in a very, very low-cost way. You do not want to ever get the impression that you can pick stocks.”
By choosing your own stocks, you’d restrict yourself from diversifying across many different assets to reduce risk.
In fact, by investing in individual stocks, you could be putting yourself at greater risk because if the company you’ve invested in goes out of business or underperforms, it could affect your entire holding.
3. Utilise dividends
As you read here, data from 7IM suggests that dividend yields have historically been more stable than cash savings.
Warren Buffett’s suggestion of making the most of dividends backs this up. In fact, he said: “We relish the dividends we receive from most of the stocks that Berkshire owns but pay out nothing ourselves.”
So, if you are looking to invest, it could be beneficial to consider investing in businesses that provide consistent dividends and reinvesting these dividends.
4. Get high value at a low price
In his 2008 Berkshire Hathaway shareholder letter, Buffett revealed another key principle when it comes to investing.
He said: “Price is what you pay; value is what you get. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
When investing, it’s important to look for opportunities to get more value at a lower price. While it may sometimes seem counterintuitive, investing when markets have fallen can have long-term benefits, as you are picking up shares in good companies or funds at value prices.
5.Learn about money
One of the most important aspects of investing is investing in yourself, and learning about managing money is key to that.
Buffett was once quoted as saying that risk comes from not knowing what you’re doing, and his business partner, Charlie Munger, went one step further by stating: “Go to bed smarter than when you woke up.”
When looking to invest, it is essential that you limit exposure and minimise risk wherever possible. So, if you don’t understand something, you should think twice about investing in it.
6. Be in it for the long term
While one of Warren Buffett’s most often quoted statements is “our favourite holding period is forever”, it’s also important to heed the words of economist John Maynard Keynes too, as he says: “when the facts change, I change my mind.”
While buying funds or shares with the intention of never letting them go is a sensible one, due to excessive trading fees and short-termism sometimes leading to investment losses, you could also consider selling investments if you believe that their best days are behind them.
Of course, before you take any action like this, speaking with a financial adviser could give you all the information you need to make the right decision for you.
7. Pay attention to fees
When it comes to investments, costs are very important. This is why Buffett preaches the advantages of low-cost index funds and warns investors to pay close attention to fees.
He says: “If returns are going to be 7% or 8% and you’re paying 1% for fees, that makes an enormous difference in how much money you’re going to have in retirement.”
8. Start early
When investing, Buffett believes that the earlier you start, the better.
At the 1999 Berkshire Hathaway annual shareholder’s meeting, he told attendees: “Start early. I started building this little snowball at the top of a very long hill. The trick to having a very long hill is either starting very young or living to be very old.”
Investing early, or with a long time horizon, could give you the opportunity to earn positive returns because your investments have longer to recover from downturns and market uncertainty.
9. Be patient
Warren Buffett has given many top tips for investors over the years, but one of his most famous is the quote: “The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch.”
This piece of advice is incredibly important as it highlights the need for choosing the right time and the right opportunity based on your financial circumstances at the time.
10. Invest in yourself
At the Berkshire Hathaway annual shareholder’s meeting in 2022, Buffett claimed that you are your best investment, especially during times of inflation.
He said: “The best thing you can do is to be exceptionally good at something. Whatever abilities you have can’t be taken away from you. They can’t actually be inflated from you. The best investment by far is anything that develops yourself, and it’s not taxed at all.”
Get in touch
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
