4 Warren Buffett lessons I use to invest

Investor Warren Buffett has shared his investment wisdom for decades. Christopher Ruane considers four Buffett insights which inform his own investing.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warren Buffett is well known for his investment prowess. Thanks to his annual shareholder letters and high media profile, anyone can benefit from his advice on investing in shares.

As an investor I have learnt a lot from Buffett. Here are four key lessons I use in my own investing.

1.    Take a long-term perspective

Buffett eschews short-term thinking. Instead of trying to eke out small profits trading, he looks to buy stakes in companies he expects to grow exponentially in the coming decades.

Sometimes I am attracted to companies that seem to have a bright future if only for the foreseeable future. But when I think about Buffett’s advice, I focus more on investment ideas I think might succeed for decades.

For example, Safestore is a self-storage provider. I expect demand for its services to grow for many years from now. I’d be happy to buy it now and hold it indefinitely. A growing industry can attract competition and drive down profit margins, though. So, like Buffett, I’d diversify my holdings to reduce my risk.

2.    Read the accounts

During the global financial crisis, Warren Buffett was asked to consider bailing out the bank Lehman Brothers. He spoke to its boss on the phone. But apart from that, he spent most of the day in his Nebraska office reading the company’s annual report and accounts.

A lot of investors would think that for such a large possible investment, it would be necessary to speak to people across the banking industry. They’d want to get the latest information on the bank from people on the spot. Buffett didn’t. He realised that legal reporting requirements meant that if he scrutinised the company’s accounts closely, that could furnish him with much of the information necessary for his decision. He decided not to invest, and Lehman crashed within a year.

Annual reports contain a lot of flannel but they are also often valuable sources of information. For example, I think Renewi operates in a promising business field, but one close look at its accounts gave me concerns about its weak profitability.

3.    Warren Buffett on greed

One of Warren Buffett’s most famous aphorisms is “Be fearful when others are greedy and greedy when others are fearful.

Buffett sees other people’s greed as a warning sign of market overheating. That is why he is fearful. Lately there have been examples of greed in the market, from the Gamestop frenzy to the disappointing IPO of Deliveroo.

I also think there is a fair amount of greed from some investors in Argo Blockchain. Following Buffett’s advice, I am therefore fearful. While I see some merit in the Argo business and its management, I don’t plan to invest in its shares at their current price.

4.    Warren Buffett is happy to wait

A striking theme of Warren Buffett’s investing across his lifetime has been his patience. He has said that if the stock market closed for years at a time, it wouldn’t bother him.

What interests me about this is that it only works because of Buffett’s investment philosophy. If he was a trader exploiting market swings his patience could be a liability. But it’s not, because Buffett is an investor not a trader. He is looking for quality companies to buy and hold, in some cases forever.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

christopherruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

3 top shares for the ongoing stock market recovery

Although messy, I think the stock market recovery is beginning and that's why I'm now buying shares such as these.

Read more »

Mature people enjoying time together during road trip
Investing Articles

5 UK shares I bought for income of 9.5% a year

We recently bought these five cheap UK shares for their generous dividend yields. These cash payouts range from nearly 7%…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Is there still time to buy Scottish Mortgage shares?

The Scottish Mortgage share price has risen strongly in recent weeks. Should I pile into the FTSE 100 momentum stock…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Why I’d start buying shares with £250 today not £20,000 in future!

Is it worth waiting to start buying shares until one has more money to invest? Our writer doesn't think so…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

I’ve bought Diageo shares to boost my long-term passive income!

I plan to hold on to my Diageo shares well into retirement. Here's why I think it's a top stock…

Read more »

New virtual money concept, Gold Bitcoins
Investing Articles

Down 61%, are Argo Blockchain shares worth buying?

Argo Blockchain shares have tumbled in value. As a shareholder, Christopher Ruane considers what might come next for the business…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 UK dividend stocks with yields over 10%

These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…

Read more »

Couple relaxing on a beach in front of a sunset
Investing Articles

I’d start buying shares for passive income with this pair

Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.

Read more »