Warren Buffett has seen it all when it comes to investing in stocks and shares. And the billionaire Berkshire Hathaway CEO has some advice for investors who are wanting to lose money.
According to Buffett, there are a lot of things people can do to lower their investment returns. Some of the most important are below.
To be entirely clear, I’m trying to make money by investing, not lose it. As such, I’m attempting to do the opposite of all this advice.
Try to get rich quickly, rather than slowly
Making money in the stock market is best done as quickly as possible. Waiting around for investments to go up is a waste of time – it’s much better to try and find something that’s going to go up in the next week or so.
History indicates that the chances of making money by investing in shares are higher the longer someone stays invested for. So don’t, under any circumstances, invest for 10, 20, or 30 years.
Buy things that are hard to understand
Try to stick to extremely complicated, difficult-to-understand investments. Ideally, go for something like a biotech with a potential future drug that is almost impossible to evaluate accurately.
When the share price falls – as all shares do sometimes – not having a clear idea of why it might recover or what it’s really worth makes it much easier to panic and sell. This is an easy way to lose money in stocks.
Don’t worry about the price
When it comes to investing, price doesn’t matter. A good business is worth an infinite amount, so it’s impossible to pay too much for it.
Don’t waste time working out whether a share price is 50, 100, or 500 times the company’s earnings. It makes no difference to anything from an investment perspective
Ignore the fundamentals
More generally, don’t worry about the underlying business. It doesn’t matter what its balance sheet looks like, how expensive it is to run, or if it has any prospect of making any money in the future.
Investing isn’t about the underlying business. It’s about working out which stocks will go up and buying them before someone else does.
There’s a magic formula
Investing is basically a numbers game. All that’s needed is to find the right numbers from a company’s accounts and then do some maths.
From there, nothing else matters. Certainly nothing like the company’s intangible assets, competitive position, or management quality – thinking about any of those things is a waste of time, so don’t do it.
Leverage, leverage, leverage
Lastly – and this is arguably the most important piece of advice – be sure to take on debt to buy shares. Doing this is key to maximising losses.
By investing using leverage, it’s possible to be forced out of a position at a loss if the price falls. It basically happens automatically – how could losing money in the stock market be easier?
