It’s a valid point that the older you are, the more life experience you’ve had. In this way, the advice of an older person is often more beneficial than someone much younger. This is true in the investment world. Warren Buffett (aged 90) has been successfully investing for many decades. So the advice that Buffett has offered over the years is likely to be beneficial for me to listen to.
What it means to beat the market
Before I get into some pearls of wisdom from Warren Buffett that I’ve benefited from, I want to talk about beating the market. It’s a term that’s thrown around a lot these days. When I speak of beating the market, I’m referring to generating a higher return than the FTSE 100 index. This can be thought of as the average return from the stock market.
This doesn’t mean that I’m trading each day in order to try to make a higher profit. It simply means that if the FTSE 100 index rises by 5% in a year, ideally I want to beat that benchmark. How can I give myself the best shot at doing this? That’s where Warren Buffett’s advice comes in.
The first point I’m benefiting from is thinking about Buffett’s quote that “you can’t produce a baby in one month by getting nine women pregnant”. The point being made here is that good things take time to be manifested.
If I’m trying to beat the market over the course of one day or one month, it can be pretty hard. But over the course of several years, my active stock picking should start to show better returns. The longer I spend investing, the higher the likelihood that I manage to outperform the FTSE 100 (not that it’s guaranteed).
Using Buffett’s advice to find good value
Another piece of advice from Warren Buffett is that I should “be greedy when others are fearful, and fearful when others are greedy”. The idea here is that often the broader market can become oversold during times of panic, or overbought during boom periods.
A good example of this was during the stock market crash last March. I saw many stocks that were trading at levels not seen for many years. This was true even though the impact on those businesses wasn’t likely to be fatal. This would have been a good opportunity for me to buy these type of shares.
In doing so, I should have been able to achieve a higher return in the year that followed than the FTSE 100 index as a whole. This is because instead of buying all 100 stocks, I would have only selectively bought a few that truly looked undervalued. The returns of these recovering stocks should have been higher than the overall FTSE 100 performance in the following year.
There are plenty of other great pieces of advice from Warren Buffett that can help me with investing well. As a smart investor, I’d do well to listen to him!
