5 lessons from Warren Buffett that investors can use to make right decisions
A sound strategy is to follow your defined investment allocation through the existing monthly surplus and investment portfolio
Warren Buffett, who turns 91 on August 30, is one name that most stock market investors draw inspiration from. There are many learnings we can take from Buffett's investment philosophy and his journey.
Here are some of the ever-relevant learnings that investors can use to make the right decisions in the market with more than 4,000 companies and around 400 equity mutual funds:
1 Invest in companies that you understand
It is said if you shake a hand with someone and you get just four fingers back, you will never shake hands with the same person again.
The same is true when it comes to investing. Investing is not just about returns, it is equally about the risk you take to generate returns as well. If you had a bad experience with investing in any instrument, you will never trust it again irrespective of its potential. Hence, it is extremely important to know with whom you are investing your money and what are they going to do with your money.
Doing some homework to check out on the companies or funds will help you make more informed decisions. It is perfectly alright not to invest in avenues that you do not understand, howsoever lucrative they appear to be.
2 Invest in companies as an owner and not as a speculator
When you invest in a company you invest in its growth potential and prospects. Irrespective of the size of the investment, you become a part-owner of the listed company when you invest in it. We all understand that building, growing and sustaining the growth within the company is a long-term affair.
If you invest in companies for quick short-term gains, you may make money sometime but not for a longer period by following this mindset.
We all need a good solid portfolio that works as an anchor for our overall finance. This can be achieved by looking at stock investing more as an owner, where you give time to the companies to grow, perform and generate good sustainable returns for you on regular basis for the long term.
3 Be fearful when others are greedy and be greedy when others are fearful
This is one of the most common and known learning we all would have come across multiple times but still worth reminding, particularly in the present situation where the stock market continues to surge for nearly a year and a half.
The stock market is never a straight line, it will always have its ups and downs. Factors like greed and fear also have a role in these market movements.
When we look back at February and March 2020 when the Covid-19 pandemic almost brought the world to a standstill. That is where the fear factor caught up among investors and the stock market across the world started correcting.
These are ideal times to invest as the companies that you want to invest in will also be available at a lower price as others continue to sell.
On the other side, everyone is talking about stock- market investing and want to know more options to invest and generate higher returns.
These are the times to follow a cautious approach as many companies will appear attractive from their past return perspective and even the market sentiment is euphoric where many investors are willing to invest.
This not only makes the companies expensive and overvalued but also adds risk to such investment.
4 Do not borrow money to invest
There are many occasions when the stock market greed can catch up and many investors feel like investing every rupee to maximise their return.
Some will go even a step further and invest in the stock market by borrowing money or even taking a loan, thinking that the cost of borrowing is lower than the returns expected from the stock market.
You should never borrow money to invest as the stock market is always risky and if the situation changes, you will be staring not just at the loss of your investment but also your net worth as you will have to repay the borrowed money taken to invest as well.
A sound strategy is to follow your defined investment allocation through your existing monthly surplus and existing investment portfolio.
5 Do not watch the markets regularly
Stock market investing is for the long term and when you invest in companies, the key is to have sufficient patience with these investments. Looking at the market movement frequently may provoke you to take wrong decisions that may not work for you. It may also affect your disciplined approach towards investing.
A better approach is to focus more on the companies and funds where you are investing rather than their daily price movement.
It is the nature of the stock markets to move up and down on daily basis, that is where it creates opportunities as well as threats too.
Patience is the key when it comes to stock market investing. You can keep it simple by focusing on the right things that help you build more confidence instead of worrying about the stock market.
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