He started investing when he was just 11 years old. He has been in the market for 80+ years and is considered one of
the most successful investors in the world. He is known as the Oracle of Omaha. He is none other than Warren Buffet.
Warren Buffet’s views on the stock market are respected by investors around the world as they contain pearls of
wisdom that can be useful for all. He keeps the investment rules simple.
If you want to learn from the master, here are some of his best lessons that will stand the test of time.
1. "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1."
This quote reminds us that preserving capital is crucial in investing. It's not always about making the biggest gains but avoiding significant losses. As Buffet says, "Risk comes from not knowing what you're doing." If you don’t understand the business, it is better not to invest in it. Always stick to what you know and don’t take unnecessary risks. If you can make sense of what the company does and how it earns its money, you can invest in it. If you are unsure, it is better to stick to things you know instead of getting adventurous. When you invest in equities, you expect to make money. So stick to tried and tested methods and focus on preserving your capital. After all, you need to survive to fight another day. You may also choose to invest in mutual funds and let the fund managers handle the portfolio.
2. "Price is what you pay. Value is what you get."
It's easy to get caught up in short-term price movements, but what really matter is the underlying value of an investment. Buffet is known for his focus on buying high-quality companies at a reasonable price. Many a time the average investor bases decisions on the headlines in the paper or the television and the chatter that is heard on social media. Most of this noise can be ignored since they make temporary dents and cause no permanent damage to your wealth. It is important to be aware that the stock price can react to news flow every minute but that doesn’t impact performance in the long run. Instead, you should use opportunities to buy good companies whenever you get them at a good price if you consider it fair value.
3. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Buffet emphasizes the importance of investing in high-quality companies that have a competitive advantage, even if they may seem expensive compared to their peers. These types of investments tend to have long-term growth potential. When you are positive about the growth prospect of a company and you believe it is at a fair price, you should go ahead and buy it. Never buy a mediocre company simply because it is available cheaply.
4. "Our favourite holding period is forever."
Buffet's philosophy is to buy and hold great companies for the long-term. This means not getting distracted by short-term market fluctuations and instead focusing on the underlying fundamentals of the company. You cannot become rich overnight. It is not about timing the market but about the time you spend in the market. If you invest early and stay invested for a long period of time without moving in and out multiple times, it is more likely that you might earn better returns. Of course, you should invest in good quality stocks or schemes for this to happen. If you buy right, you can sit tight and hold on to your investments forever. After all, with 80 years in the market, you simply have to trust his wisdom.
5. "Be fearful when others are greedy, and be greedy when others are fearful."
Buffet encourages investors to take advantage of market opportunities by doing the opposite thing. This means buying when others are selling and selling when others are buying. It takes discipline and patience, but it might lead to good returns over time. This is easier said than done because more often than not, the average investor buys in greed and sells in fear which is the exact opposite of what Warren Buffet advises. It is important to get into this mindset of understanding the quality of your investments and adding to them when the prices come down due to unrelated reasons or market cycles. When rates reach very high levels, it may be time to take out some money or at least not add to your investments. This mantra can lead to wonderful results if average investors can control their emotions better.
6. "The stock market is a device for transferring money from the impatient to the patient."
One of Buffet's most famous quotes reminds us that investing requires patience. The stock market can be volatile, and it's easy to get caught up in short-term fluctuations. But if you have a long-term perspective and are willing to wait, you can often achieve better returns. Patience is the key to success in investing. If you get influenced by short-term movements, you will end up buying expensive and selling cheaply which is the reverse of what you actually want.
To Wrap Up:
Warren Buffet is the living inspiration of every investor as he has managed to generate a fortune by sticking to the basics and following a simple investment philosophy. He started early, invested in good quality stocks, never sold in fear or bought in greed and simply stayed put. Warren Buffet's investment lessons may seem simple, but they're incredibly powerful. By focusing on the long term, being patient, and investing in high-quality companies, you may achieve impressive returns over time.
For those who cannot manage their investments personally, the best solution is to identify good mutual fund schemes, enter early and invest regularly through SIP and let seasoned fund managers handle your money for you.
Hope these timeless lessons from the Oracle of Omaha help you become a better investor!
An investor education initiative by ICICI Prudential Mutual Fund
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