Investing Lessons from Warren Buffett

Investing Lessons From Warren Buffett


Ace stock market investor and world’s 6th richest man Warren Buffett has over 50 years of experience in stock market investing He is one of the most successful investors of all time. There are numerous life and investing lessons to learn from the legendary investor. Let’s look at some of these valuable lessons.


Start Early

Buffett started dabbling in business at the tender age of 5 when some of us are busy playing with our toys or watching Chhota Bheem and Doraemon cartoons.

Buffett started selling Chiclets gums and lemonade in front of his friends house. He had the wisdom to not sell in front of his own house as it had less traffic compared to his friend’s house! Till the age of 11 he dabbled in various businesses like selling Coca Cola, different gums door to door and, collecting and selling used golf balls and selling peanuts and popcorn at local University football games.


Don’t overly fixate on your buying price

At age 11 Buffett bought his first stock. He put his sister’s money along with his. He bought the stock for $ 38.25 and soon the stock fell to $ 27. He sold all the stock when the price reached $ 40 thus making a small profit. Later the stock rose to $ 202!

He received two lessons from his first experience in stocks.

  • Don’t overly fixate on what you paid for the stock
  • Without thinking don’t panic and rush to book a small profit, thus missing out on a much larger portion of potential profits.


Stay the course

In 2018 in his annual letter to shareholders Buffett wrote “Though markets are generally rational, they occasionally do crazy things,”

Investor has to stay the course and trust the companies he has bought. Many times, it may seem foolish when the mob panics during a bear market or gets over enthusiastic during a bull market but the investor has to trust his companies and stay the course.


Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1

This is perhaps the most important and popular lesson of Buffett. Investors should invest in such a manner that the chances of losing are very low. This requires research, conviction, patience and a good entry price.


Price is what you pay, Value is what you get

Most investors get confused between price and value. Buffett is clear when he says that price swings in short term but the investor should focus on the underlying value of the stock. This mantra has helped him to hold on to some of his investments for over 25 years. He has held stocks of Coca Cola, Well Fargo, American Express for over 25 years and some for over 30 years as well!


Risk comes from not knowing what you are doing

Although this lesson seems self-explanatory but many times investors mistake luck for skill. Success in stock A gives them the false impression that they know Stock B as well and will be able to make money. However Stock A and Stock B may be from completely different sectors and the investor ends up owning something that he does not understand completely. Buffett even after many decades of investing experience stays away from technology sector as he does not fully understand it. So investor should control the temptation to own any and every stock even if they don’t understand the underlying dynamics.


It is far better to buy a wonderful company at a fair price, than a fair company at a wonderful price

Buffett is a strong proponent of owning high quality companies. Even if it means paying a higher price compared to owning a mediocre company at a cheaper price.


Our favorite holding period is forever

One of the hallmark of Buffett is his ability to hold on to companies for very long times. He doesn’t feel the need to sell unless some material changes happen in the company.


An investor should act as though he had a lifetime decision card with just twenty punches on it

An investor should think that he has only 20 chances to invest in his lifetime. This will ensure that he picks only the best companies, understands them well and stays away from market fad.


Diversification is protection against ignorance. It makes little sense if an investor knows what he is doing

Although business schools teach us the virtues of diversification but Buffett believes that diversification is protection against ignorance and it makes little sense if an investor is confident about his investment.


Opportunities come occasionally. When it rains gold, place out the bucket, not the thimble

Through Buffett’s history of many investments one thing that strikes us is that whenever he finds an opportunity he buys truck loads of its and not just few shares. Most of us make the mistake of spreading our portfolio too thin across many investments and thus unable to buy large quantities of a winning stock.  In the end we end up with mediocre portfolio return and the effort of finding a winning stock is wasted.


The most important investment you can make is in yourself

Even after spending a lifetime making successful investments Buffett is still a voracious reader. He spends a lot of time reading annual reports and many times just sitting and thinking. Reading and thinking helps him in making less impulsive decisions. It also gives him confidence to stick to his investments.


I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will

Many times companies are led by poor management. So it is important to buy businesses which even an idiot can run. This will help the investor tide over the poor management.


Investing Lessons from The Legendary Warren Buffett. Contact Wealth Baba – Financial Planner & Investment Advisor in India.

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