Kimberly Wing
Warren Buffett is the founder, chairman and CEO of Berkshire Hathaway, a conglomerate that owns well-known businesses including Geico and See’s Candies, and owns stock in companies such as Apple, Johnson and Johnson, Coca Cola, Kraft Heinz, and various banking companies. Buffett began investing in the stock market at age 11 and graduated from the University of Nebraska-Lincoln at age 19 with a degree in business administration. How has Warren Buffett maintained his business-related success? Here are a few investing tips he suggests:
Be patient with your investment choices, and choose wisely. After finding a company you want to invest in, take a deep breath and look at the bigger picture. Give the stock time to achieve a reasonable price, and invest when the price is right.
Consider companies with intrinsic values: Buffett applauded Apple as a strong company to invest in because Apple products not only draw in customers, but continuously engage them with linked services such as Apple TV and Music: people pay an initial price for electronics and return for more.
Instead of considering the stock itself, evaluate the business behind it. Focus on successful companies that you know well, and know will become more successful over time. Some things to consider before investing in a stock include company performance, debt, profit margins, price of the stock, and whether the company is public or private. Buffett himself said that “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Make smart investment decisions. Don't buy certain stocks just because everyone else is, especially with the influence of social media. The best way to invest is to ignore what a crowd does entirely, and focus on finding value on your own.
Learn the basics of investing in value. Value investing prioritizes paying low prices for investments. A value investor's goal is to buy $100 worth of a company's stock for ideally much less than $100. Recognize the full and potential value of an undervalued company. With enough investment, the company's stock price will increase and generate a profit for the value investor.
Understanding compounding. Buffett considers compound interest, dividend reinvestment, and constantly reinvesting in operating cash flow generated by Berkshire Hathaway's sub-businesses. Berkshire Hathaway has averaged a 20.1% annualized return since Buffett became CEO, which has resulted in a 3,641,613% total gain for shareholders.
Leave your investments alone for 7 years. Buffett advises to have 3-6 months of savings for emergency needs before investing. This will allow investors to react to any impending recessions or inflations. Leaving investments alone for 7 years will allow the economy to cycle up and down.
Bear Markets are a good time to buy stocks. Bear prices are periods of downward trending stock prices that usually occur during recessions. This often leads to higher interest rates. Buffett describes himself as a net buyer, and therefore buys more than he sells. When a bear market occurs, it may be good to purchase stocks that would generally be unaffordable.
“You don’t get paid for activity, you only get paid for being right.” Many stock market analysts and commentators can tell you what to do with your money. However, Buffett suggests that investors who constantly switch from position to position probably won't produce great returns. Although activity can seem productive while investing, what truly matters is whether you were right in your analysis.
Research and reflect. Buffett often spends the majority of his time in his office alone, reading or doing nothing at all. He views knowledge as something that is gained and strengthened over time, and he believes that his success is attributed to accumulating as much investment knowledge as possible.
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