Top Investment Tips by Warren Buffett
Every aspiring investor and businessman wants to follow Warren Buffett's footsteps, but that’s easier said than done. Over the years Buffett has shared a lot of useful advice and insight about what made him the successful investor he is today. Here are some of his best investment tips.
Get Enough Knowledge
By the age of ten Buffett had read every single book in the Omaha public library on the subject of investing. One of the prerequisites for getting rich is to read every day because only then you will have enough knowledge to recognize a great opportunity and grasp it.
Knowledge must be compounded like an interest rate that works for you in the long run. Once you feel prepared you have to act and apply this knowledge by making real investments.
Avoid Emotional Spending
Warren Buffett is famous for his frugality. Even though he owns a multi-billion empire, he still lives in the house he bought about 55 years ago. Spending wisely means that you should avoid emotional purchases, and instead invest money in something that will make you richer in the future. Saving money is always a good idea and it is never too late to start.
Be Your Own Asset Manager
Do not over-rely on analysts or media commentaries. It is the investor’s responsibility to do their homework and research the stocks they are about to buy. In other words, you should think of yourself as the owner of the company you want to invest in. If you do not understand the business, then the chances are that it will not be a successful deal.
Invest in Unique Companies
It is always better to invest in a company that has a dominant market position or a special product than in a company whose product is barely different from other competitors. The latter can be risky, as these types of organizations have limited abilities for correcting their prices, which makes them vulnerable to inflation. Also a great piece of advice for picking a company in which to invest is to look for a business that produces products that are purchased by their customers repeatedly. Coca Cola and Gillette are arguably the best examples for this.
Choose the Right Moment
Investors are advised to buy promising financial instruments when the market is down and sell losing shares when it is on the rise. The explanation is simple – if you choose to sell when the market is on a downturn, this will only make your loss bigger. You have to be prepared to wait when bad times come and eventually the stocks will recover. Do not sell when everybody is selling and do not buy when everybody is buying.
Create Your Own Strategy
Many novice investors do not even have a financial plan and rely on the goodwill of financial advisors and stockbrokers. This is a flawed approach because it is you who cares more about your hard-earned money than anyone else. Create a long-term strategy with strict goals and follow it. The features of this strategy have to suit your personality and trading style. Do not copy somebody else’s moves, because what works well for one player may be unfavorable for another.
This advice is obvious but yet many young investors tend to hold themselves from being successful. By the time Warren Buffett graduated from high school, he had tried 20 different ways to make money. Were they all successful? No. Did this make him stop and give up trying? Quite the opposite! It is perseverance that builds your character and that will help you overcome your fear of failure.