American investor Warren Buffett is undoubtedly the most recognised name in the world of investing. His investing tips and books on making money have guided many investors across the globe on their wealth creation journey.
But it’s not just his tips that work wonders. Today, the share price of Berkshire Hathaway Inc., which Buffett owns, reached $500,000 on the stock market!
So, what keeps Buffett and his money ticking over even at the ripe old age of 91?
Well, here are five essential investing takeaways from the legend himself.
1] Invest in what you know - If you do not understand a business, either do not invest in it, or, invest in it with utmost caution. Don’t blindly follow the trend and invest your money in something where you do not understand the work or the trend, just because everyone else is doing it. Before investing, research the company's fundamentals and market trends.For instance, if you have no understanding of the upcoming trends in fashion, then it’s best to avoid investing in the stocks of a fashion brand.
Buffett says: "Never invest in a business you cannot understand." Better that than losing it all due to the fear of missing out.
2] News and noise - It is easy to get distracted by the bombardment of stock buying tips and financial news. So, always do your own research rather than just blindly following any such tips. Don't think about selling that stock just because a company misses a quarterly or annual result by some margin. Prices will always move up and down; do not get swayed by such news and lose your position.
Buffett’s famous quote on market tips best summarises his views on why one should not blindly rely on sensational market news: "Because there is so much chatter about markets, the economy, interest rates, price behaviour of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments. Remember that the stock market is a manic depressive. "
3] Long-term investing - Never invest in stocks for the short term, if you want to create wealth. The more you trade, the more you lose in terms of returns, and eventually end up paying more taxes. Hold on to your stocks for a long time, because good and fundamentally strong businesses will grow in value and fetch higher returns in the long run.
One of Buffett’s most famous quotes, when asked how long to hold on to a stock, best shows his view of wealth-creating habits. "If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes."
4] Diversification woes- Too much diversification is bad. It essentially means you are not sure of your investments, and have, therefore, placed your money in too many mediocre stocks. The end result will be that your entire investment corpus will not grow exponentially.
The Oracle of Omaha is disdainful of diversion. This can be well gauged by this famous quote of his: "Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing. "
5] Investing in index funds - Many lose money trying to time the market – when to buy and when to sell. If you do not have a good understanding of the market, just refrain from doing any guesswork. Rather, invest in low-cost index funds. They follow the index and will invariably fetch a good return if held for long.
Buffett has specified how his Berkshire Hathaway shares will be invested after his death; they will be donated to charity.This clearly indicates the billionaire investor’s thought process and his long-held trust in index funds for long-term wealth creation needs.
My advice to the trustee couldn’t be more simple: Put 10% in short-term government bonds and 90% in a low-cost S&P 500 index fund.(I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors–whether pension funds, institutions, or individuals–who employ high-fee managers