What can a man born nearly 90 years ago in Omaha teach us about investing in 2017?
Well, if his name happens to be Warren Buffett and he’s worth nearly $80 billion, quite a lot!
Buffett is variously a business owner, investor and philanthropist; having given over $30 billion to charitable causes. He’s a famously successful investor; here’s six things we could learn from him
1. Invest for the long-term (part one):
“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
You are probably as likely to make a loss as you are a gain in the short-term. Investing should be seen as a long-term pursuit, of at least 5 – 10 years. Preferably more.
A long-time horizon, apart from being eminently sensible, also helps to remove the worry of short-term market corrections or falls.
2. Invest for the long-term (part two):
“Our favourite holding period is forever.”
“Forever” might be a stretch for many of us (death has a habit of getting in the way) but another of Buffett’s famous quotes to emphasise the need to hold investments for the long-term does no harm at all.
3. Don’t make decisions based on emotion:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Making investment decisions based on emotion is almost always a bad idea. Follow the evidence and you shouldn’t go far wrong.
There’s one exception though.
If something looks too good to be true, even if you can’t work out why, then trust your gut instinct and steer clear. If more people followed that rule, fewer people would fall victim to financial scams.
4. Doing nothing isn’t a bad idea:
“You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”
The key here is to understand that holding an investment, without making changes, for a prolonged period isn’t a bad thing; making changes, for change’s sake, generally is.
5. Say “no” more than you say “yes”:
“The difference between successful people and really successful people is that really successful people say ‘no’ to almost everything.”
Being selective is never a bad thing.
Carefully reviewing each investment or opportunity, and analysing the pros and cons before making a decision will lead to better long-term decision making. Being attracted by ‘shiny new things’ won’t.
6. “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1”
There are any number of ways for investors to lose money, including:
- Chasing the next big investment (remember the 2000 tech boom?)
- Not remembering the “it’s too good to be true rule”
- Getting distracted from investment fundamentals by ‘shiny new things’
But, by investing for the long-term, while holding sufficient cash to cover short-term financial needs you should be able to ride out any market falls until they recover. That, and avoiding the pitfalls listed above, should reduce the chances of you losing money.
For me, the big lesson we can learn from Buffett is patience; in my experience patient investors are more likely than not to be rewarded.
The value of your investment can go down as well as up and you may not get back the full amount invested.