Early on in my career, I earned a decent wage, yet had little to show for it by my late twenties. That said, I did own a modest house with a mortgage in London (bought during the depths of the 1989-95 housing crash). Also, I’d been investing in stocks and shares since 1986, yet my investing strategy often produced very erratic returns. But then I started paying attention to the wit and wisdom of Warren Buffett. Widely acknowledged as one of the world’s greatest investors, 91-year-old Buffett has a personal fortune nearing $105bn. And that’s after donating more than $45bn to charity. Here are four powerful investing lessons I learnt from the ‘Oracle of Omaha‘ that helped make me a better investor today.
What I learnt from Warren Buffett
1. “Just buy something for less than it’s worth.” (1991)
One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.
As a young investor, my main aim was to make some quick bucks. Sadly, instead of winning, I ended up losing quite a bit of my money all too often. So I gave up short-term trading and instead turned to long-term investing. Working to a timescale of, say, 20-30 years allowed me plenty of time for minor mistakes to come good. Hence, I tried buying into ‘fallen angels’: good businesses with battered share prices, but with potential for future recovery. And then I just sat back and let the market make me money in the long run.
2. “Price is what you pay. Value is what you get.” (2008)
During the depths of the 2007-09 GFC (Global Financial Crisis), Warren Buffett again reminded investors that price is merely one part of investing. What also matters is how much underlying value your money buys you. One lesson I learnt from this is that it’s fine to buy into great businesses with lofty price ratings. After all, quality always costs more, right? Today, I’m happy to buy stocks trading on elevated fundamentals — just as long as there are great growth businesses attached.
3. “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold.” (2016)
As share prices soared from 2009-19, I grew increasingly nervous the longer this bull market went on. Nevertheless, I kept on investing, even though history has taught me that stock-market crashes often burst euphoric bubbles. Hence, in late 2019, my wife and I sold stocks and put half of our family wealth into cash. Like Buffett, I knew there was a decent chance that it might one day rain gold again. Sure enough, in early 2020, global stock markets crashed — crushed by the Covid-19 pandemic. Within days of ‘Meltdown Monday’ (23 March 2020), our portfolio was 100% invested in stocks once more. And the S&P 500 index has more than doubled since then. Thanks again, Warren Buffett.
4. “American magic has always prevailed, and it will do so again.” (2020)
As coronavirus ravaged the globe, Warren Buffett lifted investors’ spirits in May 2020 with the above quote. However, as a young investor, I invested essentially all of my spare cash into UK shares trading on the London Stock Exchange. Over time, I realised that Buffett’s cheerleading for America was right, so now I have high exposure to US stocks. However, with the US stock market trading at historical highs, I see the UK’s FTSE 100 index as offering better value today. That’s why I’ll keep on buying cheap UK shares in 2021-22!