Warren Buffett is the CEO of the multinational conglomerate Berkshire Hathaway. He is also a highly successful investor and, according to Forbes, the fifth richest man in the world.
Buffett is said to have bought his first stock aged just 11 and in the eight decades since then, he has shared a great deal of investment advice.
Here are just five invaluable lessons to take into your investment portfolio.
1. “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
It’s important to remember that investment is for the long term.
A successful investment isn’t one that generates the biggest returns in the shortest possible time, but one that achieves your goal, within your time frame, while taking a level of risk you are comfortable with.
That means avoiding trend-chasing and sticking to your plan.
Ignoring the noise of the herd and staying focused should prevent you from chasing fast gains or becoming emotional, buying and selling each time the market moves.
2. “Be fearful when others are greedy, and greedy when others are fearful.”
A key part of staying focused on your long-term goal is remaining unemotional during periods of short-term volatility.
When markets fall it can be all too easy to make snap decisions but these knee-jerk reactions could have long-term consequences.
Selling stock at a loss because you fear a further decline means making a paper loss into a real one. This could severely set back your long-term plan.
A far better approach is to stay patient and wait for the market to bounce back.
Even after the 2008 financial crisis, markets recovered. This marketing adage may not be attributable to Warren Buffett but it remains true: “It’s time in the market not timing the market that counts.”
With your full fund invested, you’ll be able to take greater advantage of the market recovery when it occurs.
Remember too that when the market dips, you might consider buying stocks at a lower price. This is the “being greedy” part of Buffett’s advice.
While it could see you make good returns when markets recover, remember to always speak to us before you make any investment decisions.
3. “The most important quality for an investor is temperament, not intellect.”
You have already read that’s important not to let emotions inform your decision-making when it comes to investments. But trend-chasing – or herd mentality – isn’t the only form of investment bias that could affect the choices you make.
Back in 2020, as the outbreak of the coronavirus pandemic affected world markets, we asked Are you thinking of changing investment plans? Financial bias could be to blame and the same biases could be an issue today.
To use another Buffett quote, “Successful investing takes time, discipline, and patience”.
The key thing to remember is that patience is key and at HA&W we can make use of our decades of combined experience in the sector to provide reassurance throughout your investment journey.
4. “Predicting rain doesn’t count, building the ark does.”
Buffett famously said of market volatility, “It’s not an ‘if’ but a ‘when’”. And at HA&W, we understand that too.
Working with us means you’ll have confidence that your money is funded for the long term, in a diversified way, which matches your risk profile, and with a strategy that is constantly monitored by our in-house investment committee.
This is how we build your ark, putting you in the best position possible to ride out the storms of market turbulence that will forever be just around the corner.
Source: London Stock Exchange
A look at the FTSE 100 over the last 20 years shows the general upward trend of the market, despite huge global events like the 2008 financial crisis and the coronavirus pandemic.
Maintaining confidence in your investment in 2003 would have seen it grow despite the short-lived periods of decline.
5. “Risk comes from not knowing what you are doing.”
Investment carries risk and for that reason, it is vital that you feel confident about what you are doing. You might not have the experience, but we do.
Alongside the above, Warren Buffett has several rules about risk, including:
- “Never invest in a business you cannot understand.”
- “Rule number one is never lose money. Rule number two is never forget rule number one.”
While never losing might be unfeasible, avoiding loss should be your aim. If you have no money left, you have nothing to invest, so think carefully about your risk profile and seek advice the moment you are unsure.
Get in touch
At HA&W, we have the experience to look after your money. So whether you are looking to add to your current portfolio, or you are looking to invest for the first time, we can help. Contact our Chartered financial planners now to find out how.
Please note
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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
