As the saying goes, the only things certain in life are death and taxes. Is it certain that I’ll become a millionaire from my stock market investments? Unfortunately not. However, if I follow the advice of a billionaire that has done just that, it should certainly give me a better shot at achieving the goal. The billionaire I’m referring to is none other than investor Warren Buffett.
Don’t try and do too much
Most beginner investors tend to buy and sell stocks too often. It’s true, I used to be like this as well. There’s that feeling that being constantly in and out of trades is the best way to make quick cash.
In reality, compounded gains can often be the highest by simply holding a stock for a long period of time. Buffett eluded to this in his comment that “Wall Street makes its money on activity. You make your money on inactivity”.
Investors can chew through transaction fees and the spread between the buy and sell price, which is how the banks and brokers make money. If I’m buying a stock to hold for a few years, this is fine. But trying to to do too much eats into my cash and can hinder my shot at serious wealth.
Take advantage when the time comes
There’s no question that it’ll take a while to become a millionaire from the stock market. So along the way, the market will experience a crash or two. A good example of this was back in 2020.
When occasions like this happen, I want to follow Buffett’s advice that “the sillier the market’s behaviour, the greater the opportunity for the business-like investor”.
I’m not saying that when the market falls it’s silly to do so. But it’s often driven by short-term panic and fear. This can push great companies down for no valid reason.
If I can be shrewd and buy value stocks below the clear long-term fair value, I can provide myself with a greater chance of realising a profit further down the line. Added to this is the fact that the size of the profit should be larger than normal, given the potential size of the market crash and recovery.
Limit the losses
Finally, my shot at hitting serious wealth will be helped by not taking on large losses. Warren Buffett notes that “risk comes from not knowing what you are doing”.
Put another way, I’m probably more likely to suffer a loss if I buy a company that I haven’t done my research into. Or at the very least, I’m not making an informed decision about where I’m investing my money. This heightens the risk.
I’m never going to win big on every stock I buy. But I can do my best to avoid the big losses that can really derail the entire plan. If I can ensure that I either win big, win small, or lose small, I’ll come out on top.
