| June 12, 2021
Warren Buffett's 8 best tips for Investing in the stock market
Warren Buffett or the Oracle of Omaha is on the prayer list of every investor who wants to make a mark in the stock market. Is it not an everyday thing to become the World’s third richest person only with the help of investing.
Let’s put the pedal to the metal and dive into his pool of wisdom.
Tip No. 1 ‘Never invest in a business you cannot understand.’
It is of utmost importance to understand the business and not the stock that you are thinking to put your money in. After all investing in a stock is equal to owning a piece of business. Mr. Buffett says, ‘If you are not willing to own a stock for 10 years, do not own it for 10 minutes.’
Tip No. 2 ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’
Being a value investor, he has always chased the stock which yields a humongous profit but at a rock-bottom price. It is said that he has a list of hundreds of companies and is waiting for the prices to come down. Always remember, time is the friend of the wonderful business, the enemy of the mediocre.
Tip No. 3 ‘Our favourite holding period is forever.’
It won’t be astonishing to know that he started investing at the age of 11 but gained 99% of his wealth after his 50th birthday. This is the power of compounding. The stock market is designed to transfer money from the active to the patient. If the initial work of choosing the company is done correctly then the time to sell the stock is almost never.
Tip No. 4 ‘Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.’
To be a successful investor, one must understand the true power of diversification. Diversification doesn’t means to invest in different sectors or industries but to invest in businesses which you are able to understand. It’s better to invest in few industries which you understand rather than investing in different sectors just for the sake of diversification.
Tip No. 5 ‘Beware the investment activity that produces applause; the great moves are usually greeted by yawns.’
It is clear from the past examples that investments takes time to create a fortune. Strategies or ideas take time to give you meaningful returns. Buffet’s ideology is to focus on the underlying value of the investment instead of short term swings in price. In other words, Investment decisions should be made on Value you are getting and business you understand and not on short term movement in price which may look attractive.
Tip No. 6 ‘When investing, pessimism is your friend, euphoria the enemy’
Anybody who has traded or invested is very well aware of the consequences of investing in a market which is either full of roses or full of guns. The key equity trading tip is to be fearful when others are greedy and greedy when others are fearful.
Tip No. 7 ‘The difference between successful people and really successful people is those really successful people say no to almost everything.’
In order to focus on a few things that matter the most in our lives, you need to say no to the not-so-important things flying in your directions every day. This is also true when it comes to investing in the stock market.
Tip No. 8 ‘Unless you can watch your stock holding decline by 50 percent without becoming panic-stricken, you should not be in the stock market.‘
The stock market is not for the weak hearted. You need to look beyond the day-to-day or even monthly fluctuations of your investments and enjoy the lucrative long-term returns.
To conclude, Warren Buffett's invaluable insights emphasize understanding businesses, long-term value, and the power of compounding in successful stock market investing. His advice on patience, caution, and maintaining a strong mindset provides guidance for achieving long-term success and building wealth. Following Buffett's principles can pave the way for making a mark in the world of investing.