It’s scary, starting out in the stock market, what with all that Wall Street dog-eat-dog stuff from the movies. But Warren Buffett couldn’t be further from that.
He’s a self-made billionaire. And he’s helped make millions for many of his investors, through their shares in his Berkshire Hathaway company.
Following a few of his key investing tips has helped me to put emotion aside, keep calm, and invest for the long term.
Stock market crash
When the 2020 stock market crash hit, many saw it as a disaster. When I told someone I wasn’t too bothered, they really couldn’t understand. “Look how your shares have fallen and how much money you’ve lost — what are you going to do”?
But I hadn’t lost a penny, and I did nothing.
The depressed market could have bought my Lloyds Banking Group (LSE: LLOY) shares from me at around 25p at one point.
Sell cheap? No!
But I asked the same person what they’d do if they were selling their car, and someone offered half what they thought it was worth. “Well, I wouldn’t sell“.
So why would I sell my Lloyds shares?
That’s one of the key lessons I learn from Buffett. The stock market offers me the chance to buy or sell shares. But if I don’t like the price, I don’t have to. It’s fine to ignore a panic and ignore all those people selling.
Buy and switch off
I can buy shares, and switch off from the market for the next 10 years. Until I want to sell them, why should I care what the price is?
Well, I do keep my eye on prices. And if I think they get too high, I’ll happily sell shares for more than I think they’re worth — if the market’s offering.
So buy shares only when I think the prices are good, not what the market says on any specific day. Then keep them for the long term, and only ever sell if I think the price is right.
What you know
To be successful takes a bit more. How can we know a share price is good to buy or sell at? Again, there’s guidance from Buffett. He says we should only buy shares in businesses we understand.
When it comes to banks, like Lloyds, I think I understand them well enough. There are complexities, but their core business is straightforward. They’re in an essential sector that the world just can’t do without. They can also generate bags of cash to pay dividends, at least when the economy’s good.
Cheap shares
It’s my understanding of banks that makes me think Lloyds shares are cheap on a price-to-earnings (P/E) ratio of under six. And a dividend yield of 6% adds to the sweetness. Now, Lloyds could still be in for a tough time for while yet.
But as long as I’m happy with their value, and I don’t plan to sell until I can get a better price, I can just sit back, relax, and do nothing. Warren Buffett often does just that.
