Warren Buffet, the Oracle of Omaha himself, hasn’t written an investing book but has nonetheless imparted pearls of wisdom through the years. So how can we mortals model our investing methodologies on his timeless principles?
A Giant for the Ages
Some of us might be able to recall the ad campaign of yesteryear that enjoined us to “Be Like Mike,” referring to basketball giant (literally and figuratively) Michael Jordan. But in the world of finance, who is the towering giant that aspiring investors and traders look to for inspiration and wisdom?
Many investors have earned impressive returns, but one name that keeps popping up as a contender for the title of “Greatest Living Investor” is Warren Buffett. And indeed, Mr. Buffett’s track record is astonishing, beating the vast majority of traders and investors alike.
In order to truly understand Buffett’s philosophy of investing, we must first recognize that he is a supreme long-term thinker. In fact, Buffett has quipped that his favorite holding time is “forever.”
This type of long-range thinking might be difficult to swallow for the young and the ambitious among us: those who want to get rich quickly and show off the spoils to our friends. Like it or not, short-term thinking tends to lead to a case of financial myopia – and an even more unfortunate case of an empty trading account.
Doing Nothing Can be Profitable
Warren Buffett has emphasized that the financial markets tend to transfer wealth from the overactive to the patient. It might seem counterintuitive that a lack of activity can be profitable, but Buffett is famous for doing nothing sometimes, and this has worked out quite well in the long run.
The fact is, you just won’t find very many investors more patient than Warren Buffett. He’ll only buy a stock or fund when he has compelling reasons to do so. If the reasons just aren’t there, he won’t buy – it’s as simple (yet also as difficult) as that.
Research is the Key
But don’t get the wrong idea: Warren Buffett doesn’t just sit around doing nothing all day long. Sure, he could easily afford to do nothing at this point in his life, but understand this: When he’s not investing, Buffett is conducting diligent research.
Being like Warren Buffett isn’t a life of idle inactivity – not by a long shot. Painstaking, thorough research is vital to Buffett’s way of thinking and investing. Truly, it is research that has made him rich.
Don’t Try to Time the Markets
There’s an old saying that it’s time in the markets, not timing the markets, that makes us wealthy. Rather than attempting to catch the exact bottom or top of a price movement, Warren Buffett prefers to stay in a position for the long haul – and the results have been astounding, time and again.
Beginners tend to ignore this advice and try to predict where markets will go in the short term. Oftentimes the result is a poorly timed trade that could have been a profitable long-term investment if given enough time to work itself out. So if you want to be like Warren Buffett, allow your investments sufficient time to work in your favor.
Knowing What You Don’t Know
Remember that best friend you had in school, the one you would confer with and bounce ideas off of? Well, Mr. Buffett has his own “BFF” (best friend forever) and his name is Charlie Munger. Mr. Munger is himself quite wealthy and a fantastically successful investor.
As smart as Warren Buffett is, he knows that he doesn’t know everything, even in the realm of investing. Therefore, Buffett turns to people like Charlie Munger when he wants a different perspective or possibly someone to bounce ideas off of. He also consults with experts in specific fields of endeavor, as he is willing to recognize that he isn’t an expert at everything.
Certainly Warren Buffett is at an advanced stage of his life, but that doesn’t mean that he has stopped trying to learn new things. Even the greatest investors among us are always ready to read a new book or learn a new skill or idea.
For example, technology stocks were somewhat unfamiliar to Warren Buffett once. Recently, however, Buffett has been willing to learn about the tech sector, and has even invested some of his capital into it.
Yes, You Can Be Like Buffett
In the end, you don’t have to be a multibillionaire to be like Warren Buffett. You only need to follow some fundamental principles and be willing to accept new ideas in your pursuit of financial freedom.
Always invested in your success!