Buffett moved swiftly and made large investments in blue-chip companies like GE, Goldman Sachs, Bank of America, Mars, and Dow Chemical which per a 2013 estimate fetched a profit of over 10 billion US dollars. For instance, when there was a global economic meltdown in 2008, it was fear which was questioning the long-term prosperity of most businesses. Warren Buffett is one such investor who has perfected this art and encourages other investors to do the same. But when fear sets in, then great businesses are available at huge discounts for anyone who is ready to keep their gloomy emotions aside. When there is greed, people are ready to pay more than what a business is worth. The stock markets work in cycles of greed and fear. Lesson 4: Be Fearful When Others Are Greedy And Be Greedy When Others Are Fearful “That whole idea that you own a business you know is vital to the investment process,” Warren Buffett. And once you have answers to the pertinent questions, invest in a business that you would like to own for the next 10 to 20 years.Ī case in point is Berkshire Hathaway which displays an owner’s mindset with their multi-decade holdings in companies like GEICO, Coca-Cola, American Express, and Wells Fargo amongst many more. 500 crores without wanting to know some details like how much profit is this company generating, what are the competitive advantages, what are the growth prospects, the risks, the capital expenditure required, etc.īuffett’s lesson here is that instead of getting too caught up in the recent movement of the stock price, you should spend more time analyzing the business behind the stock price. Lesson 3: Have An Owner’s Mindsetįrom Buffett’s perspective, buying a stock is nothing short of buying a business and one should follow the same kind of rigorous analysis and due diligence as one would do when buying a business.įor example, say someone offers to sell you his company for Rs. “A low-cost index fund is the most sensible equity investment for the great majority of investors,” Warren Buffett. In other words, Buffett wants retail investors to follow a system over everything else.Īnd it is this system and a clear investing framework finding great business at good reasonable prices that have powered Berkshire Hathaway for the last five decades to become one of the biggest and most profitable corporations in the world. Lesson 2: System Overpowers The Smartįor someone who earned billions using his stock-picking skills, Buffett’s advice for retail investors to use a low-cost index fund may look surprising but has clear reasoning behind it.Īfter all, investing via index funds gives you the advantage of a system, it allows for a disciplined investing cycle via SIPs and keeps emotions away from corrupting that framework. “Never invest in a business you cannot understand,” Warren Buffett. The point Buffett makes here is that if you know what you are doing then there are enough opportunities everywhere. And this performance chart of Berkshire Hathaway versus Nasdaq really proves it with Berkshire Hathaway staying ahead of the Nasdaq for most of these last two decades. In fact, it was only in 2016 that Berkshire Hathaway bought a stake in Apple after really understanding the business.īut keeping away from technology was not a problem for Buffett at all. Hence he stayed away from these stocks for many years. Buffett has time and again advised investors to not chase everything that shines and to only focus on the opportunities that they understand.įor instance, Buffett himself did not understand how to value technology stocks for a prolonged period of time. Many first-time investors have started trading in stocks and cryptocurrency without really understanding how these asset classes work. Lesson 1: Risk Comes From Not Knowing What You Are Doing So, in this blog, we will put together the available information into 9 valuable investing lessons which can help us in becoming better investors. In fact, Buffett himself has eloquently penned down his thinking framework in his annual letters to Berkshire Hathaway’s shareholders. Over the years, a lot has been written about Buffett’s investing style by others. In other words, if you had invested 10,000 US dollars in his investment firm Berkshire Hathaway in 1965 that 10,000 US dollars would today be worth over 280 million US dollars. Buffett’s investment track record is outstanding with compounded annual returns of a little over 20% over the last 55 years.
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