Warren Buffett is widely known as one of the most successful investors of all time. And there’s a lot to learn from his wisdom.
Here are 10 investment lessons you can learn from this investing legend.
1. “Rule #1: Never lose money. Rule #2: Never forget Rule #1.”
It takes an entire lifetime to build up your wealth, and only a small lapse of judgement or one big mistake to wipe it all out.
As an investor, your goal isn’t just to ensure that your investments give you the best returns. You also need to ensure that you don’t lose money.
2. “Risk comes from not knowing what you’re doing.”
It’s a common investment advice that you should always diversify your portfolio so that you can spread the risks.
But if you take a look at all the successful investors, you’ll find that most of them accumulated their wealth because they focused on a very specific form of investing. But they got really good at it.
Warren Buffett also said this, “Diversification is protection against ignorance. It makes little sense if you know what you’re doing.”
Instead of adopting a “carpet bombing” strategy, why not find something that you’re interested or passionate in and study it until you become really good at it.
3. “Price is what you pay. Value is what you get.”
Price is largely determined by the market – by demand and supply.
And since the market isn’t always rational 100% of the time, the price does not accurately reflect the true value of an asset.
4. “Someone is sitting in the shade today because someone planted a tree a long time ago.”
The moral of the story is this: If you want to enjoy the fruits of your labour in future, you have to start sowing the seeds today.
Your money tree takes time to grow and mature before you can reap the rewards. Investing is a long-term strategy and time if your biggest multiplier.
Start investing as early as possible.
5. “In the business world, the rear-view mirror is always clearer than the windshield.”
There is something called the hindsight bias. And it simply means that it’s much easier “connect the dots” looking back than looking forward.
You often hear financial analysts talking about why the market crashed, or why the economy is in recession, but only after the fact that it has happened.
It’s rare to find someone who is able to accurately predict future events accurately and consistently.
It’s almost impossible to accurately predict the future 100% of the time, in stocks, in business, and in life, because you’ll never know what might happen.
6. “You only have to do very few things right in your life, so long as you don’t do too many things wrong.”
Have you heard of the prudent investor who wiped out his entire life’s worth of assets due to just a few big mistakes?
It only takes one bad judgement, or a moment of greed, to undo 10 years of steady investing.
7. “A public opinion poll is no substitute for thought.”
When everybody’s doing the same thing (say, buying the stocks of a certain company), it doesn’t necessarily mean that it’s always the wisest thing for you to do.
Don’t be a blind sheep in the herd.
Instead, always analyse the situation and think for yourself. After all, it’s your money at stake.
8. “Our favourite holding period of forever.”
This goes against the goals of many investors today. They buy the stock only with the intention of selling it off at a profit as soon as possible.
In another quote, Warren Buffett also said that you should “only buy something that you’d be perfectly happy to hold if the market shuts down for 10 years.”
For the average investor who doesn’t have the latest tools and software, and probably can’t afford to monitor the stock markets the whole day, short-term trading is a very risky activity.
9. “When you combine ignorance and leverage, you get some pretty interesting results.”
The results might be “interesting” for those who are observing, but I’m sure it won’t be nearly as fun for the investor who is losing his entire fortune.
The bottom line is this. Don’t invest in things you don’t know. And don’t leverage if your methods aren’t proven to work yet.
10. “I always knew I was going to be rich. I never doubted it for a minute.”
Whatever your financial situation is right now, it’s important that you hold the belief that you’re eventually going to be successful.
This is essential because we all know that achieving success isn’t easy.
And someone without the belief that he is going to succeed will probably spend his entire life not achieving anything significant.
I’m sure you’ve heard this quote by Henry Ford before, “Whether you think you can, or whether you think you can’t – you’re right”.
I know this sounds cliché, but it’s true. Adopt a belief that you’ll succeed, and one day, it might just become a reality.