All of us want to earn money and different people use different methods for earning it. Some sell products, some sell services and some sell both, which requires hard work as well as dedication towards the work. But even after all those hard work most of us didn’t get that much amount of money that can satisfy our needs. But there exist some people who do not want to do hard word on a daily basis, they want to earn using their brains instead of manpower. For them, we have the investment market.
In this method, the people do not have to do anything except investing their money into a firm and when the firm makes a profit, the investors get their share.
It sounds easy, but becoming an investor is not an easy task, there are thousands on precautions that must be taken by the investor before investing into any firm or company. If the investor fails to do so, he will eventually lose his money. The investor should be guided properly before he can make an investment, so that he can succeed in the market. The biggest name in the field of investment advice is Warren Buffett. Warren Edward Buffett is an American investor, business magnate and philanthropist. His leadership with Berkshire Hathway has set examples globally. As of today, Mr. Buffet is considered to be among the most successful investors in the world with a total net worth of $73.3 billion.
Warren Buffett is an extremely knowledgeable person and he never hesitates to share his knowledge and wisdom in advising new investors. His close followers will find that his journey to success has been so thorough and evidential that it has now become a habit to search for his advices before investing anywhere.
For us, the common man investor, who has limited capital for investment, getting such wise and time tested advice is not less than a boon. In this article, we are going to explore such few investment tips Mr. Buffet has given over time.
So, here we are with the top investment advices given by Warren Buffett.
Invest in what you know… and nothing more
Sometimes the investor is not aware of the industry or firm in which he is investing. They spent their entire career working in a bunch of industries which can eventually become an unavoidable mistake.
“Never invest in a business you cannot understand.”
Lack of knowledge does not mean that the investor cannot invest in anything, all they have to do is take precautions before doing anything. There exist a lot of factors on which the rise and the fall of the company depends and it is very difficult to predict what will happen to the company in upcoming days. If the investor cannot understand the working of the company, he should not invest in it.
Never compromise on business quality
Well, rejecting a business investment opportunity is easy but identifying a high quality business is a very difficult task. Buying a high quality company which can promise the investor long term opportunities as well as a continued growth is the real key to success. Even Warren Buffett failed sometimes in the field of investing but all those losses are nothing against his 50 years or experience in the industry. Sometimes the low cost doesn’t mean that you actually have to buy that stuff, letting go is sometimes more profitable.
While giving this advice, the following well known quote was given by him-
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
When you buy a stock, plan to hold it forever.
The biggest question which arises after a high quality business is purchased is for how much time it should be held?
According to Warren Buffet, if you purchased a business, then you should make a mindset that you have to hold it forever.
“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”
“Our favorite holding period is forever.”
When an investor buys a high quality business, then there is a surety that the business will definitely give a significant outcome through it. And continuous buying and selling of stocks will eventually eats up all the returns from taxes and trading commissions. So it is better to buy and sit back.
Most news is noise, not news
A large part of the financial news provided to the investor by the means of television, newspapers and other forms of media is nothing but a buzz or a trigger so that investor at least does something and that can go wrong. According to him no not believe on the news at its fullest, just trust your knowledge and instincts.
“Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners causes them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.” – Warren Buffett
The stock market is an unpredictable gamble so the investor must have to be very specific with the news heard by him about the business.
Investing isn’t rocket science, but there is no easy button
One of the biggest misconceptions ever made in the field of stock market is that only sophisticated people can succeed in it. But in reality, this is not at all true.
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”
The investor may or may not be as clever as a rocket scientist, but he has to be aware enough to succeed in the market. There is not an easy button available in this field and the investor has to do a lot of homework before actually performing the task of buying and selling of stocks.
“Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood…these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the models. Beware of geeks bearing formulas.”
These are the set of advices given by one of the biggest investors of all time Warren Buffett. After following these instructions and advices, an investor can surely succeed in the stock market.