"When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience." – Warren Buffett
As many of you know, I’m a huge Warren Buffett fan. Here’s some pointers of his from over the years:
- Diversification isn’t always a good idea…Buffett says that diversification is for people who don't know much about investing. An experienced investor should choose stocks on a long-term basis and should have faith in his/her investments.
- Invest in yourself first: Warren Buffett says that the best investment one can make is in his/her own abilities. Most people are not going to make most of their money from the stock market. They're going to make it from their careers. So put yourself first.
- Trust yourself to be a successful investor: To be successful, you need to overcome that fear and not pay attention to what others are telling you. Accumulate knowledge and make investment decisions on your own to stand separate from the crowd and be a winner.
- Only make investments that you understand: Buffet says that before he invests in the stock of a company, he has to first understand how the company makes money and the main drivers that impact its industry in no more than 10 minutes. If he's not able to understand it in 10 minutes, he moves on to evaluate another company on this basis.
- Make sure you choose the right news to focus on: Buffett believes in the 99-1 rule. Most investors take actions based on 1% of the financial news they consume. Doing so, they quickly sell their stocks whenever bad news comes up - e.g. a company's revenues have fallen by 10%. If the company in this particular example has been in business for, say, 100 years, then Buffett says that it's definitely capable of withstanding such events. In other words, people often tend to overreact.
- Buying a stock of a company is buying part of a business: When you buy a stock, you're not just buying a piece of paper or a ticker symbol. Buying the stock of a company is buying an ownership stake in a BUSINESS – So KNOW that BUSINESS….
- Learn from your mistakes and move on: Buffett advises keeping a record of the mistakes you've made so that you know what went wrong and make sure you don't repeat them again. He also says that you should share these lessons with your children and grandchildren so that they know what mistakes not to commit.
- Don’t be a day trader: According to Buffett, the secret to getting a better return on investment is to buy a stock and forget about it. He believes in having a buy-and-hold mentality and insists on holding stocks for decades.There are two principles behind this: (1) if you buy a stock for less than it's true worth, the stock's price will eventually converge with it's intrinsic value; and (2) if you buy a wonderful business, the value of that business will compound and increase exponentially the longer you hold on to it. So, the patient investor will ultimately be rewarded if they hold on to their stocks for a longer time. For Buffet, time is the friend of a wonderful business.