Key lessons that Warren Buffet teaches us regarding investments

Warren Buffet, an American billionaire is the world’s most eminent investor known for his smart investment ideology. He openly shares his wisdom publically to benefit new investors. He is believed to be one of the finest coaches on matters relating to investments. Warren promotes long term investment, thoughtful decisions for risks involved and benefits thereon. Golden tips by Warren Buffet on long term investment are referred by academia, conferences and investors fraternity.

You could benefit from five of these golden nuggets as well!

Investment is a serious business not a hobby

Inside each one of us is an investor in one way or the other. However, “investment” in the stock market is a different game. This requires serious study, in depth knowledge and understanding of market trends. Only years of study, research and close observation sharpen the skills required to make worthwhile investments. Managing investment is a serious thing; it requires a different mindset which needs to be developed in order to place an investment.

Heart or Mind

Several business decisions are taken emotionally and not rationally. It does not mean it is absolutely wrong. However, investment decision need more than that. Investment made out of excitement can reduce investment returns or perhaps may end up with distressing results. It is but natural to be more conscious of risks when the market slides down and be more optimistic when the stocks are soaring high. This is exactly where when every step towards investment needs to be weighed with all pros and cons.

Warren has warned investors of decisions made out of emotions. He advocates rationality and not to panic if the market falls.

Know your capability

Assessing your own capability is a primary requirement to avoid badly calculated investment. A person must invest in areas where he can exercise his expertise rather than into unchartered areas. Besides the investor’s personal proficiency in understanding the market Warren advises to invest in companies you know the best in terms of their business model, stakeholders, company’s assets and their investment style. It is necessary to keep a close eye on how the business responds in certain situations.

This investment ideology revolves around Warren’s basic thinking of investing long term. According to his belief there is no short cut to better returns.

Patience is the key

People panic when stocks fluctuate, this is a bad habit. Wise decisions do not come out in anxiety and frustration therefore freaking out is the last thing you want to do as a good investor. This is the time to exercise patience and wait. Long term investment will give dividends at the right time. Temptations to jump on other opportunities are fairly high but hopping seldom pays in the long run. Put a restriction on yourself on number of buying, put into effect the same procedure you did while buying present stock; research and analyse whether you should be jumping to the new stock.

In Warren words “the right mentality is get rich slow, not get rich fast”. Quicker selling loses primary focus; the end financial reward. In haste investor may sell underperformed stock at a lesser price and buy new at higher only in anticipation, this methodology does not work.

Shaken grounds

Many investors fear market instability and pool it with risk, which is actually not factual. It does not however mean that risk factor may not be thoroughly assessed. If you have bought good companies with rich solid history there’s nothing to fear. Markets fluctuations are regular feature, fluctuation also give an opportunity to buy stocks there were otherwise not viable. Market is eventually destined to rise and it’s you who will eventually benefit from this volatility and receive dividends.

However, it is always important to note when the market is going to take a nosedive, and if it is actually going to recover. Sometimes, fundamentals of the economy are more important that the fundamentals of the stock market. Always evaluate your options and the market to ensure your investments are safe. You can always look through more help and advice to see what investment and savings options would work for you.