The Motley Fool

Why I believe this neglected tip from Warren Buffett really could make me rich

Image source: Getty Images.

Anyone with even a mild interest in managing their own finances will probably have heard of Warren Buffett. He’s the richest general investor of all time and likes to pass on his wisdom in crafted sound bites delivered in an avuncular style.

Articles and stories repeating his aphorisms pepper the internet. And the ongoing output of Buffett-themed material keeps on coming.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

For example, who doesn’t know by now that Warren Buffett likes to pay a fair price for a wonderful business? Or that he goes shopping for shares when economic clouds are in the sky? Surely many of us chant in our sleep that price is what you pay, but value is what you get. And we mutter to ourselves that we pay a full price for a cheery consensus.

Buffett fatigue

However, there’s danger in becoming over-familiar with Buffett’s utterings. Repeating things too often just normalises them and minimises their impact. I’m guilty myself of letting Buffett’s sayings wash over me without really thinking about them anymore.

And one of the problems is when Buffett speaks, it all seems so casual and, well, obvious. But decades of successful experience with investing back the deceptive simplicity of his advice. And he’s distilled his statements into easy-to-understand nuggets.  I reckon he thinks before he speaks – he thinks a lot. Indeed, thinking is the main thing he’s done with his entire life.

But we’re not listening — not properly. Because if we were, most private and institutional investors wouldn’t be under-performing the general stock market. And there’s a load of research out there demonstrating that most of us are doing poorly with our investment strategies and tactics.

There’s one tip in particular from Buffett I reckon is neglected and could really make me rich. I think many people have overlooked it because it’s non-specific. But it’s probably one of the main drivers separating poor-performing investors from out-performing investors. The tip is Buffett’s famous rule number one – never lose money.

Risk-first investing

Sounds so obvious, right? But no investor sets out to lose money. We always think our stock picks will make money – that’s why we pick them. But many of us do lose money. For example, we allow losing investments to run. Why do we do that? Buffett himself recently cut his losers when he sold his airline stocks. And a few years back he ditched his investment in Tesco, holding his hands in the air and admitting he made a mistake.

And we sometimes execute our portfolios like the grand old Duke of York – marching our stocks to the top of the hill and then marching them down again. But holding on for too long can cause a loss of gains. And that’s losing money.

I think Mark Minervini addresses Buffett’s advice best. He says we should approach every investment risk-first. Instead of asking, how much could we gain on an investment, we should think about how much we could lose. And we should have a plan for dealing with the situation if it begins to develop.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.