Warren Buffett, the CEO of Berkshire Hathaway and often regarded as the "Oracle of Omaha", is an individual who made a fortune out of smart investment decisions and is considered to be one of the greatest investors of all time. At the age of 91, he has a net worth of about $107. 2 billion, as of December 2021.
One of Buffett's most famous quotes is “Be fearful when others are greedy and greedy when others are fearful.” The advice from the life of a person like that ought to be a treasure to seek wealth, to become smarter and to become better with life decisions.
While we all dream of being wealthy, we often take the wrong steps in the wrong direction when it comes to investing. What we need is the right people to lead us out of the wrong. Who better than the Wizard of Wealth, Warren Buffett himself?
Here are some key takeaways from his investing ideologies:
Investing - The Long Term Partner:
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for ten minutes.”
Buffett started investing at the age of 11 and it's still something he does 80 years later. There are no shortcuts to earning quick money if you are to become a successful investor. The plan to invest must be undertaken by considering the long term goals. People who try to make quick money are actually the ones who end up losing more money. Committing to your actual decision and not getting distracted by short gains is the key to becoming a big player.
Diversification is not always rewarding:
“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
While most investors tend to think that investing in a number of different financial instruments, industries and other categories is a good idea, Buffett tends to proceed with caution. He suggests that diversification is for inexperienced individuals with little knowledge of investment. They think it is a low-risk investment.
Diversification could be a bad idea if you invest in a number of businesses that you don't understand. It thus dilutes the impact of high-quality assets. It also becomes harder to keep the focus on individual investments.
Quality stocks over cheap stocks:
While buying stocks, you need to understand that cheap does not always mean better. As a smart investor, you need to qualitatively weigh in the stock based on the industry, their expected rise and the reason for their fall. The company's fundamentals must be studied carefully before making any investment decisions.
According to Buffett, for an investor, buying a great company at a fair price is far better than buying a fair company at a great cost. The chances of losing money in a cheap stock are much higher, compared to a fairly valued stock.
Only invest in companies whose business you understand:
People often get swayed by what other people are saying or what they hear in the news and end up investing their hard-earned money into stocks whose business they don't understand. If you can comprehend how the business works, you can determine and predict the economic issues in the future by knowing your industry and company. The stock market is full of firms whose business can be understood by any individual. Buffett tells you to invest only in those whom you understand.
Think Like An Owner:
Suppose you are going to purchase a guitar, you are probably going to weigh its price with its worth, think about features and compare it with other guitars and see if it has a fair valuation. You will end up buying the one which suits your interests the best. You are less likely to make mistakes if you review everything and then decide what's best for you. Use the same principle while buying stocks. If you own stock in a company, you own the company, as simple as that.
Have some faith in yourself:
“When an individual with cash meets an experienced individual, that individual with experience ends up with cash and that individual with cash leaves with experience.”
One of the most difficult things as an investor is to trust your decisions. People always tend to think that others are right and they are wrong. Don't let it get to you. Have faith in your due diligence and believe in yourself. Make calculated decisions and stand by them even in times when people say otherwise.
Having patience is the key, Rome wasn't built in a day. With experience, you can become smarter and a better decision-maker. Seek experience. Never stop learning. Make your decisions wisely. In fact, Warren made more than 99% of his fortune only after the age of 52.
Warren Buffett's incredible discipline and understanding of the markets has resulted in astronomical returns not only for himself but also for his stakeholders for more than three decades. He understands that reputation and integrity have economic value and these very principles have made him one of the greatest assets of the investing world.