Warren Buffett built a +$100 billion net worth through long-term investing. Every year since 1965 he’s written an annual letter showing us how he did it.
Here are 10 investing lessons from Warren Buffett:
- WHAT YOU OWN
What and how you invest matters. Buffett focuses on businesses with great management and economic advantages.
The key word is business.
Buffett isn’t a stock picker.
He calls himself a business picker.
- DIVERSIFICATION
Just because you’re diversified doesn’t mean less risk.
Just because you have a concentrated position doesn’t mean you have more risk.
Concentrating on a few stocks can decrease your risk if it means you’ll pay more attention to the business.
- MARKET PRICING
Buffett says a stock price shouldn’t determine whether you buy or sell.
In the short term, people vote with their dollars on which stocks will do well.
In the long term, stocks with the most value tend to do well.
- BE GREEDY WHEN OTHERS ARE FEARFUL
When money is cheap, hold on to it.
When money is expensive, invest it.
Every so often doom and gloom will hit the stock market, run towards it with wads of cash, Instead of running away with pennies on the dollar.
- BUY BUSINESSES THAT REINVEST IN THEMSELVES
If it’s a great company, with great management, and great profits… Why wouldn’t they reinvest in themselves?
This creates an element of compound interest. Except instead of your returns compounding, it’s business operations.
- PRIORITIZE MOAT
If a business model produces high profits, there will be competition.
Businesses that thrive like this have one thing in common: A moat.
A moat doesn’t only keep them profitable, but it keeps them in competition long term.
- BUY BORING BUSINESSES
Especially if they sell products/services people need. Boring businesses provide stability and longevity to your portfolio. This allows you to make money for longer periods of time.
- INVEST LIKE A SLOTH
“For investors as a whole, returns decrease as motions increase.”
Most investors would make more money if they bought and held instead of buying and trading. This applies to rebalancing too…
- REBALANCING YOUR PORTFOLIO
Most people trim a position once it gets large. Buffett does the opposite.
Selling positions that have become too big is the same as the bulls trading Michael Jordan because he’s become too good.
Don’t sell your winners- Let them run.
- TIME AND BUSINESS
Time is a friend of great businesses but an enemy of mediocre businesses.
Just because a company does well short term doesn’t mean it’s sustainable.
“When the tide goes out, you’ll see who’s been swimming naked.”
