As history’s most-accomplished investor, Warren Buffett’s timeless advice can help you avoid some common investing traps that can jeopardize your financial goals. Here are three pearls of wisdom from the Oracle of Omaha to help you be a better investor.
The sloth wins
“For investors as a whole, returns decrease as motion increases.”1
Buffett is a big proponent of inaction when it comes to investing. Investors who frequently trade and try to time the market can be setting themselves up for failure. Buffett believes investors are better served by buying a limited quantity of quality stocks and holding them long term rather than trying to time their buying and selling with market cycles. He makes only a handful of investments per year after careful research and owns them for long periods. As he says, “if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”2
Thoughtfully choosing your investments and staying focused on the long term will put you leagues ahead of the majority of investors who trade indiscriminately and have no insight into the stocks they hold.
No news is good news
"Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits — and, worse yet, important to consider acting upon their comments.” 3
There’s no shortage of financial news being churned out by the minute. News headlines are intended to generate buzz and trigger our emotions. Most news about the markets is just noise that can distract you from your long-term goals.
That doesn’t mean stock prices won’t move significantly on a piece of news in the short term. As an investor, you need to ask yourself if a news item truly impacts the long-term earnings power of the businesses you own. It pays to be selective in the news you choose to listen to, much less act on. The media’s job is to sell advertising, not help you focus on the long-term picture or achieve your financial goals – that’s up to you. Likewise, reacting to news items won’t help you as an investor the way it will to have a long-term vision bolstered by a well-designed financial plan.
Investing is simple, but not easy
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.” 4
It’s a misconception that intelligence and being a talented investor go hand in hand. Following Buffett’s simple and straightforward investment philosophy doesn’t take a genius. The remarkably difficult part is consistently sidestepping behavioural mistakes, and no formula or set of magic rules can guarantee your success. From having an intimate understanding of the businesses you own and evaluating the best time to buy and sell them, to staying abreast of market and economic developments, investing is an art that demands deep commitment and self-control – it shouldn’t feel easy.
Above and beyond the benefits of professional investment advice, it can be invaluable to have a coach for those inevitable bad periods you’ll experience as an investor, when you may be panicked or more susceptible to acting out of emotion than based on a reasoned plan.
If you’d like to walk through how to apply Buffett’s advice to your financial situation and better reach your goals, contact our office today.
- Warren Buffett, 2005 Chairman’s Letter, Berkshire Hathaway Inc. Annual Report.
- Warren Buffett, 1996 Chairman’s Letter, Berkshire Hathaway Inc. Annual Report.
- Warren Buffett, 2013 Chairman’s Letter, Berkshire Hathaway Inc. Annual Report.
- Lowe, Janet. Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor. New Jersey. John Wiley & Sons Inc., 2007.