Warren Buffett is arguably the most famous investor in modern history. The “Oracle of Omaha,” as Buffet is known, has a net worth of $100 billion after more than 50 years at the helm of Berkshire Hathaway.
In this guide, we’ll take a look at 10 pieces of investment advice that capture the essence of how Buffett built his fortune. Let’s get started!
Warren Buffett’s Investment History
Warren Buffett’s investment career began in the 1940’s, when he studied at Columbia Business School under the famed value investor Benjamin Graham. He started out as an investment salesman and security analyst before founding his own firm, Buffet Partnership Ltd., in 1956.
By 1962, Buffett’s investments had made him a millionaire. He purchased Berkshire Hathaway and assumed the chairmanship in 1970, and turned what was originally a textile manufacturing company into a global investment firm. Buffett became a billionaire when Berkshire Hathaway began selling shares to the public in 1990.
Berkshire Hathaway suffered enormous losses during the 2008 financial crisis, but Buffett doubled down on investments throughout the crisis. The result was that the company grew rapidly in the decade of strong growth that followed the crisis. Buffett, 90 years old, remains at the helm of Berkshire Hathaway today.
Warren Buffett Investment Advice
Buffett has been quick to offer advice for investors throughout his long career. Notably, much of his advice points out that success comes to those who remain patient and exercise good judgement – not the most daring or intelligent people in the market.
So, Warren Buffett’s investment advice suggests that anyone can achieve success with a sufficient amount of hard work.
1. Invest in What You Know
Buffett made a point throughout his career of only rarely investing in technology companies. That’s because he only invests in companies and industries that he can easily understand. If a company’s business model or potential success or failure is based on a complex set of factors, there’s simply too much uncertainty involved for Buffett.
He suggests investors take the same approach and invest in companies and industries they know well. For example, if you have a background in healthcare and understand the industry well, consider investing in healthcare-related companies.
2. Invest for 2050 and Beyond
Buffett’s philosophy on investing timeframes is that “if you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.” He’s also said that Berkshire Hathaway’s favorite investment time horizon is “forever.”
The idea is that the companies you invest in shouldn’t just be good for the next year or two. They should be well-run companies with solid foundations that can continue competing in their industries for decades. They should also be adaptive enough to respond to changes in the industry.
3. Focus on Making Good Investments, Not Diversification
Although most investment advice for beginners focuses on diversification, Buffett isn’t keen on this idea. “Diversification is a protection against ignorance,” says Buffett. “It makes very little sense for those who know what they’re doing.”
The key takeaway isn’t that diversification is bad, but that it shouldn’t be used as a crutch. You should have a strong reason for every single one of your investments, rather than simply investing across a wide range of industries.
4. Ignore Prices in Favor of Value
Investors and the financial community as a whole are obsessed with stock prices – especially when they’re low relative to recent prices. However, prices on their own are relatively meaningless.
That’s why Buffett encourages investors to focus on value rather than price. Investment decisions should be based primarily around what a company is worth based on its fundamentals and how that compares to the current stock price. “Price is what you pay. Value is what you get,” says Buffett.
5. Bargains are Only Good if the Business is Good
While it can be tempting to buy a company when the price dips, Buffett cautions that long-term thinking requires a more holistic look at a company’s prospects. Sure, the company’s share price might rebound in the short-term, but is the company built to succeed for years to come?
Once again, it’s important to consider value, not just price. As Buffett says, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
6. Be Patient
In all of his investment advice, Buffett focuses on the important of patience. It is much better, according to Buffett, to wait for opportunities to arise than to chase investments that aren’t quite as good as you want them to be.
“The stock market is a no-called-strike game,” according to Buffett. “You don’t have to swing at everything — you can wait for your pitch.”
7. Have Cash Ready When an Opportunity Arrives
Along with patience, Buffett emphasizes preparedness. When a once-in-a-decade investment opportunity arises, investors need to be ready to pounce on it.
That means making large, strategic investments rather than small, timid ones. At times during Buffett’s investing career, a single investment has represented more than one-third of his entire portfolio. Investors can prepare for these opportunities by keeping a stockpile of cash, particularly during times when the market is doing well.
8. Index Funds are Good for Most Investors
Buffett is well-aware that finding investment opportunities that others have overlooked is a time-consuming process – one which most casual investors cannot or will not take on. For those investors, he recommends investing in index funds such as an S&P 500 fund.
Buffett believes that these low-cost funds are good at capturing the stock market’s long-term upside while keeping expenses and short-term trading to a minimum. In fact, Buffett advises most organizations to which he donates to invest the money in low-cost S&P 500 index funds.
9. Don’t Lose Money
Buffett offers two rules for investing: “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”
While that might sound simplistic, these rules get at the importance of minimizing losses. Investors should first ensure that an investment has limited downside risk, and only then look at its potential gains.
10. Temperament Matters More than Intelligence
It’s a common misconception that the most intelligent investors are the ones who perform well in the market. But as Buffett points out, “you don’t need to be a rocket scientist.”
Buffett emphasizes the importance of temperament over intelligence. Trying to outsmart the market might work once or twice, but it’s not a sustainable long-term investing strategy. Ultimately, patience, perseverance, and a willingness to look for opportunities where other investors have not all play a greater role in long-term investing success than smarts.
Conclusion: Warren Buffet Investment Advice
Warren Buffett is one of the most successful investors of all time, and he has been outspoken about his investment strategy over his more than 50 years running Berkshire Hathaway. His investment advice focuses on the importance of being patient, prioritizing value, and swinging for the fences when opportunities arise.