7 powerful investment lessons from Warren Buffett

Published on March 18, 2021 by Blackstone

The pandemic has led to more people taking control of their finances and investing. If you’re looking for some investing tips, the following pearls of wisdom from Warren Buffett are a great place to start.

Known as a businessman and philanthropist, Warren Buffett consistently ranks on lists of the world’s richest people, with an estimated net worth of over $80 billion in October 2020. He primarily made his money through investing and is often known as one of the world’s most successful investors. So, while the antics portrayed in The Wolf of Wall Street may seem more exciting, learning investment lessons from Warren Buffett can be far more valuable.

Here are just a few of Warren Buffett’s quotes to guide your investment outlook.

1. “We’ve long felt that the value of stock forecasters is to make fortune-tellers look good.”

While everyone wishes they could see into the future and accurately predict market movements, it’s impossible. So many factors influence the market that consistently predicting how stocks will perform isn’t an option. As Buffett previously noted, even professional investors with a wealth of resources at their fingertips make mistakes, as do stock forecasters.

So, if you’re not trying to time the market to maximise investments, what should you do? It starts with building a long-term plan.

2. “Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.”

Backing up the above point, don’t continuously chop and change your investment portfolio. You should buy stocks with the view to holding them for the long term. Don’t try to predict the market or make knee-jerk decisions when values fall. Have faith in the investment strategy you’ve put in place. In most cases, sitting tight is the best course of action, even amid volatility.

As a general rule, you should invest with a minimum timeframe of five years. This provides an opportunity for market peaks and troughs to smooth out. When you look at the long-term market performance it will usually show a general upwards trend, with market volatility balancing out.

3. “Don’t watch the market closely.”

Complementing a long-term outlook, don’t check the market or your portfolio too regularly. Daily movements can be sharp, and it can mean you end up making investment decisions that aren’t right for you and your goals. It’s the same with the media, which often focuses on large falls or big gains, rather than long-term performance.

Focus on the long-term, not how your portfolio has performed in the last day, week, or month.

4. “Never invest in a business you cannot understand.”

Understanding the value of your investments is important and that means you need to understand the business.

That doesn’t mean you have to miss out on opportunities. You can take some time to research potential investments you don’t understand, or discover plenty of alternative options to major trends. For example, Buffett admitted he missed out on opportunities to invest in the likes of Amazon and Alphabet, which owns Google, because he didn’t understand the value they offered – and yet he’s still one of the most successful investors in the world.

The same goes for products, make sure you understand how your pension or ISA works. If you’re not sure or would like to learn more about product options and how they fit into your plans, please get in touch.

5. “Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”

In the media, investing is often portrayed as exciting and a way to get rich quick; think The Wolf of Wall Street. It can mean investors focus on finding the next ‘winning’ stock to deliver astounding growth in a short space of time.

The truth of investing is very different. It can be a means to help you grow your wealth, but it’s far more likely to take places over long periods without the excitement of buying and selling shares every day. The ‘dull’ investment strategy is often more likely to be suitable and deliver the long-term growth you want.

6. “In the business world, the rear-view mirror is always clearer than the windshield.”

It’s easy to think “I should have invested in Amazon” with the benefit of hindsight, as the quote from Warren Buffet highlights.

This also plays into a common financial bias called “hindsight bias”, where people perceive past events as having been more predictable than they actually were. It can cause overconfidence and may mean you end up taking more risk than is appropriate for you. Remember, events are rarely easy to predict, which is why a long-term outlook is important.

7. “Price is what you pay. Value is what you get.”

Finally, there’s often a focus on the price of stocks and shares when investing. But even when prices fall, it doesn’t mean it’s a “good” investment that will deliver returns in the future. Likewise, the price of investments falling doesn’t mean you should immediately sell them – look at the bigger picture and the value they offer.

Your investments should consider the value they bring you too. This links back to your financial plan. Rather than numbers being the focus, how will investing help you? It may mean a more comfortable retirement or the ability to buy a holiday home.

Please contact us to talk about your investment portfolio and how it can help you achieve your goals.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.