Legendary investor Warren Buffett’s plain-spoken wisdom has guided countless investors to financial success. Though his common sense approach feels straightforward, putting it into practice can be difficult. Nonetheless, here are his best tips on how to invest like a seasoned veteran.
1. Develop a focused investment philosophy
Amid the current volatility surrounding the stock market, investors could benefit from tapping the Oracle of Omaha‘s timeless insights once more.
Warren Buffett tends to filter out noise and volatility in the stock market by concentrating on businesses with large moats (competitive advantages) and competent management teams. This sound philosophy provides direction amid chaos.
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The veteran investor always defines his clear investing criteria, which are based on value, quality, and endurance. This strong philosophy guides him past distractions and panic as he’s familiar with whether a decline in a stock’s price is caused by sheer panic or proper reason.
And considering how irrational investors can get when seeing their portfolios lose value, consistently applying this chosen principle with conviction is a matter of discipline. As Buffett says, “You only have to do very few things right in your life so long as you don’t do too many things wrong”.
2. Buy bargains
On the point of stock prices declining, Warren Buffett is also an advocate of buying bargains. The sage of Omaha seizes chances to acquire quality companies at discounted valuations. He advises being “Fearful when others are greedy and greedy when others are fearful”.
The point here is that periodically, market anxiety creates pockets of underpriced stocks. And through disciplined analysis, investors can spot several opportunities to buy stocks at incredible discounts and reap the rewards later on.
That said, patience and fortitude are required for bucking consensus. However, this allows investors to scoop up shares when their future potential exceeds near-term headwinds. Quite simply, ignore the crowd’s mood swings and political discourse and focus on the business fundamentals instead.
From there, maintain a long-term time horizon, holding through ups and downs. After all, Buffett’s advice is, “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant”.
3. Minimise costs
On the theme of buying bargains, Warren Buffett also obsesses over not overpaying. He seeks bargains in part by avoiding unnecessary costs like excessive trading or taxes. As he says, “Someone’s sitting in the shade today because someone planted a tree a long time ago”.
The idea here is to minimise turnover, fees, and leverage that could potentially erode an investor’s returns. Therefore, he advises novice investors to seek out passive index funds in order to simplify and reduce expenses.
As such, index funds such as Vanguard’s VUSA or VUKE funds that track the S&P 500 or FTSE 100 could be worth exploring for beginner investors looking to get into the stock market without paying too much in fees.
Simple but profound, these tips from the world’s greatest investor can compound wealth over time. Defining a sound investing framework, buying bargains patiently, and keeping costs low require discipline, but they can also lead to the riches Buffett enjoys today.
