6 Warren Buffett’s Best Investing Advice for Small Investors
In 1941, Buffett is at the young age of 11 years old. Warren Buffett brought his first stock and started his investing journey.
With 80 years of investing, Warren have many investing lessons, which he would like to share with us.
As one of the richest men in the world, Warren is having a net worth of over $72 billion according to Forbes 400. Warren Buffett is the most respected and successful investor to date.
Here are some advice that Warren Buffett wants to give to small investors like us.
Let’s go!
Successful Investing Advice For Small Investors
Getting a mentor in investing is not easy. And not having a mentor can be expensive.
“When an individual with cash meets an experienced individual, that individual with experience ends up with cash and that individual with cash leaves with experience.”
Warren Buffett
Fortunately, you can learn from investors who have the right investing experience. And this is none other than the Oracle of Omaha, Warren Buffett himself.
1. Invest In Yourself
“Invest in as much of yourself as you can. You are your own biggest asset.”
Wisdom of Warren Buffett
The best investment you can make is to invest in yourself. Increase your ability to earn and knowledge to achieve.
Most people don’t have the correct wealth mindset. Without the right mindset and the right skill set, you aren’t going to make your wealth from the stock market.
Instead, focus on investing in yourself first. Gain knowledge on how to invest and increase your ability to earn.
“Secret to success is to sell yourself an hour each day, and use that hour to make yourself better.”
Charlie Munger, Vice chairman of Berkshire Hathaway
Perhaps, this is one of the best pieces of investment advice Warren Buffett and Charlie Munger give to young investors like us.
2. Invest Long Term
“Our favorite holding period is forever.”
Warren Buffett
Famously quoted when asked during an interview.
Warren Buffett advises that when you buy a stock, you buy with a mindset of never selling it.
“In a short term the stock market behaves like a voting machine, but in the long term it acts like a weighing machine.”
Benjamin Graham, Father of Value Investing
Investing short-term is like putting stocks on a voting machine, there is a 50% chance of the stock going up and a 50% chance of the stock going down.
Investing long-term is like putting stocks on a weighing machine, the stock will always go to its intrinsic value.
If you think you will regret buying it in the next 10 minutes, or the next 10 years, then don’t even think about buying it.
Warren Buffett
Treat investing, as if the stock market will close for the next 10 years and invest long term. Invest like you will hold the stock long pass your retirement.
If you want to be successful like Warren Buffett, don’t dance in and out of the stock market.
Instead, invest in the long-term prospect of the stock and not in the short-term fluctuation of the stock.
3. Control Your Emotions
“Success in investing doesn’t correlate with IQ, what you need is the temperament to control the urges that get other people into trouble in investing.”
Warren Buffett
Keep your emotions out of stock investing. The worst mistake that most professional investors and almost all beginner investors make is to let their emotions take control of their actions.
The inability to take control of one’s emotions to make a logical decision is the formula for a disaster.
Benjamin Graham, the mentor of Warren Buffett explains this best.
Mr. Market reflects the general emotions of the investment community, who set the price of the sock each day. Generally, Mr. Market is on medications and set the price of the stocks close to the value of the company. But once in a while, Mr. Market forgot to take his medications and let his emotions control the prices of the stocks. When he is happy, he will let the prices of the stock go way above its intrinsic value. When he is depressed, he will let the prices of the stock drop like a brick.
Do not let Mr. Market affect your investment actions.
When you decided to buy a stock, you should have a good reason for buying it.
3 questions to ask yourself before you buy a stock.
- Is the stock currently undervalued?
- Is the stock you are buying a great company?
- Are you comfortable holding this stock for the next 10 years?
When you decided to sell a stock, you should have a good reason for selling it.
2 questions to ask yourself before you sell a stock.
- Is the stock currently overvalued?
- Is the moat of the company you are selling being destroyed, thus may no longer be a good company to hold?
When performing each of the actions, decided if the action is made due to your emotions, or logical thinking.
4. Invest In What You Know
“Never invest in a business you cannot understand.”
Warren Buffett
Warren Buffett only invests in what he understood. Before he invests in the stocks of a company, he first learns how the company makes money as well as the industry where the company is currently in.
If he is unable to understand the company in 10 minutes, he will move on to evaluate another company.
The company you want to invest should be simple to you.
Warren Buffett invests in companies that he understands.
He calls this, “The circle of competence.”
“You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Warren Buffett
Risk is when you invest in something you don’t know.
Investing is never risky unless you invest in things you know nothing of.
Many investors got burned by the ‘Dot Com Bubble‘, because they know nothing of technology. Many investors of the Dot Com Bubble see their investment drop 50% to 75% of their value.
Warren Buffett on the other hand, know nothing about technology during that time, thus staying out from investing in any of the technology stocks.
Instead, he invested in the financial industry, oil and railroads. These are companies that are within his circle of competence.
If you understand about real estate, you may want to invest in REITs, while if you understand about utilities, healthcare, or consumer staples, you may want to explore investing in the related defensive stocks.
Warren Buffett made billions by investing in things he knows, and so should you.
5. Invest In Business Not Stocks
“Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their chart patterns, the target prices of analysts, or the opinions of media pundits.”
Warren Buffett
Warren Buffett doesn’t just invest in stocks, he invests in the business that each stock represents.
View each stock as a business you want to own.
Imagine you are buying a 100% stake in each business even when you are just investing with little money.
- Think about its competition.
- Understand how it earns its money.
- Understand the location of the business, and the future prospect of the business.
When buying stock think like the business owner.
If you invest this way, you will probably leave with a few great businesses you truly want to invest.
This mindset will prevent you from breaking the 2 most important rules of investing.
Warren Buffett’s 2 Rules of Investing:
- Never lose money.
- Never forget Rule #1.
6. Focus on the Right News
Probably one of the most important pieces of investment advice that Warren Buffett gives to small investors like us.
“Focus on the right news.”
Warren Buffett read 500 pages a day, not just 1 or 2 pages of the news headline.
Most investors take action based on the 1% of financial information they consume each day.
These investors want their information ‘fast’, they want to make their decision ‘now’.
Many of these impatient investors make their buy or sell decisions based on the headline of the financial news.
If there is a piece of bad news such as the company missing their earning estimate during this quarterly report. These impatient investors will sell their stocks straight away even at a loss.
The decision to buy or sell, should not be solely based on the news you hear, but on the fundamentals of the company.
This ‘noise’ can cause you to make silly investment decisions that you will regret later.
If the company has been in business for 100 years like MacDonald.
Do you think MacDonald will be in financial trouble if they miss their quarterly earning estimates?
I don’t think so.
When reading financial news, learn to understand the events, and make a logical assessment to see if such events will truly affect the business.
What Do Small Investors Need To Do?
Small investors will do very well if they heed this golden advice from Warren Buffett. You may even fare much better than those ‘professional’ fund managers who are working on wall street.
Many of these Harvard guys make money on the fees for managing the money you have entrusted them to invest, and only a few truly “beat” the market after all fees.
During the 2008 market crash, 401(k) managed by these ‘professional’ fund managers lost $2.4 trillion within 6 months. A 30% decrease in your retirement fund is managed by these fund managers.
On contradictory, those small investors who learn to invest on their own become richer after the market crash. They followed the footsteps of great investors such as Warren Buffett and Phil Town who wrote a great book called ‘InvestED’.
These investors manage to buy great companies at an attractive price, and because they are prepared, these investors become wealthier after the market crash.
But before we can become successful small investors, there is something we need.
Knowledge
Equip with the investing advice given by Warren Buffett and the right investing knowledge. Even small investors like us can be successful.
“One can best prepare themselves for the economic future by investing in your own education. If you study hard and learn at a young age, you will be in the best circumstances to secure your future.”
Warren Buffett
Knowledge of investment can be learned from books or articles like this one. Reading can only make you wiser and smarter so that you too may be able to make the right decision in your investment.
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Antony C. is a dividend investor with over 15+ years of investing experience. He’s also the book author of “Start Small, Dream Big“, certified PMP® holder and founder of IncomeBuddies.com (IB). At IB, he share his personal journey and expertise on growing passive income through dividend investing and building online business. Antony has been featured in global news outlet including Yahoo Finance, Nasdaq and Non Fiction Author Association (NFAA).
