So you are new in the investing business and a Warren Buffett quote has just cropped up on your Twitter or Instagram feed – those platforms seem to know what you like better than you do after all.
Buffett – for many, the greatest value investor of all time – offers valuable investment lessons. But might he teach you about life as well as finance?
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Who are you really?
Are you an optimist? A pessimist? Do you follow the crowd?
Warren Buffett’s mentor – Benjamin Graham – once said an “intelligent investor is a realist, who buys from pessimists and sells to optimists”.
Your desire to jump into the latest hot stock may not be beneficial. Through your urge you become the hopeful optimist. Is this where you want to be?
“Most people get interested in stocks when everyone else is,” Buffett said. “The time to get interested is when no one else is.”
Buffett consistently champions controlling one’s temperament. Can you control your greed, fears and ego?
“The most important thing to do if you find yourself in a hole is to stop digging,” Buffett said.
Easier said than done.
Know your own voice
One day you will – almost certainly – buy a stock off a tip or because of the words of others. It will – almost certainly – cost you money.
Warren Buffett demands an investor understands the business they are investing in. At 91, he still refuses to invest in areas he does not understand.
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway,” Buffett once said.
Ignore the tips and the noise. In investing, as in life, you can form an opinion of your own. Market forecasts are just forecasts after all.
Buffett said: “In the business world, the rearview mirror is always clearer than the windshield.”
Do you have patience in an instant world?
If there is one magic ingredient in an investment journey, it is time.
Warren Buffett preaches the need to buy stocks that you would be comfortable holding forever. He monetised time and patience.
“You can’t produce a baby in one month by getting nine women pregnant,” he once said.
Our social media feeds show us the overnight investing sensations of our generation. Buffett has long said beware of investment activity that produces applause, pointing to great moves being made in silence.
So become aware of the merits of patience in life.
Learn the forces around you
Investing will likely turn you on to the invisible forces around you, like another pillar of Warren Buffett’s approach: compounding.
Let us imagine you receive a dividend on an investment and you re-invest the proceeds. This money did not exist for you beforehand. Now it has bought you more shares that can in turn return a bigger dividend.
Or let’s say you buy a stock for £1 and it increases by 10% to a value of £1.10. A further increase in value means you are now earning a return on that initial 10p rise too.
Compounding filters through into life and your daily habits – look no further than Dan Hardy’s best selling self-help book, The Compound Effect.
An investing journey will teach you plenty about yourself and life. Buffett’s words may help smooth the way and keep your pocket fuller.