5 investment secrets from Warrent Buffett you can`t miss
Buffett is arguably the most successful value investor of all time. Investing principles that he has taught us are powerful if applied to one’s portfolio.
Born in a small town called Omaha in 1930, Warrant Buffett was fascinated by business from a very young age. He did many pocket-money earning chores such as selling gums, soda, and magazines door to door. He filed his first income-tax return when he was only 14. Not only that, he availed a $35 tax deduction for the use of his bicycle and his watch for his paper delivery ‘business’! Obviously he had astute business instincts. He visited New York stock exchange when he was 11. He invested in stocks that did well. He bought a small farm that he rented to a tenant farmer. And these initiatives grew to almost $100,000 by the time he finished college. Warren Buffett’s rise was relatively smooth and steady. Not all his bets worked out though. However his investments did not follow the ups and downs of the traditional investment world. By 1962, he had become a millionaire. By 1979, his net worth had crossed $600 million and was a name in Forbes 400 list. And by 1990, he had become a billionaire. He became the world’s richest man in 2008 and has been in the top-10 list of wealthiest people on earth for over a decade. As of March 2015, he is the third richest on the planet with his wealth at $72.7 billion.
Buffett is arguably the most successful value investor of all time. Investing principles that he has taught us are powerful if applied to one’s portfolio.
Born in a small town called Omaha in 1930, Warrant Buffett was fascinated by business from a very young age. He did many pocket-money earning chores such as selling gums, soda, and magazines door to door. He filed his first income-tax return when he was only 14. Not only that, he availed a $35 tax deduction for the use of his bicycle and his watch for his paper delivery ‘business’! Obviously he had astute business instincts. He visited New York stock exchange when he was 11. He invested in stocks that did well. He bought a small farm that he rented to a tenant farmer. And these initiatives grew to almost $100,000 by the time he finished college. Warren Buffett’s rise was relatively smooth and steady. Not all his bets worked out though. However his investments did not follow the ups and downs of the traditional investment world. By 1962, he had become a millionaire. By 1979, his net worth had crossed $600 million and was a name in Forbes 400 list. And by 1990, he had become a billionaire. He became the world’s richest man in 2008 and has been in the top-10 list of wealthiest people on earth for over a decade. As of March 2015, he is the third richest on the planet with his wealth at $72.7 billion.
Buffett is arguably the most successful value investor of all time. He still holds stocks he bought 30-40 years ago. His principles of value investing have stood the test of times. Whether you are an employee or a business owner? A career beginner or a person close to your retirement phase? A working male or a female? Investing principles that he has taught us are powerful if applied to one’s portfolio, irrespective of the economy you are in.
Let’s recap a set of these principles:
Understand your circumstances You must understand yourself and your circumstances before you invest. In other words your age, investment horizon, investment risks being taken, income & savings, liabilities, economy etc. should all be carefully analyzed before you start investing. These factors require detailed attention before you make your investment strategy. Your investment portfolio will invariably comprise equity, fixed income and cash (or money market) assets. Determining the right combination of all three that suits your circumstances is the key to creating wealth. The market volatility should not be the main criteria to rejig your portfolio.
Compounding is the 8th wonder of the world Most of us think that small differences in returns are a part of daily life and thus can be ignored. The fact is that these small differences in returns, when compounded over decades, can make a huge difference to your portfolio value. Warren Buffett’s CAGR at Berkshire Hathaway has been about 19.4% for the period 1965 to 2014. In other words if you had invested $100 with Warren Buffett in 1965, today you would have nearly $593,215 after 49 years. If you were not as lucky as Warren and had a CAGR of 17% in your portfolio, you would have nearly $219,335. Owing to the compounding growth, the difference in the annualized return of 2.4% (i.e. 19.4% less 17%) creates a difference in the portfolio value of over $373,000. The difference is massive!
Day trading is an absolute No! Buffett has reiterated that “Wall street makes its money on activity. You make your money on inactivity.” Active trading leads to brokerage and taxes that erode your returns. An intelligent investor makes good bets and does not trade in and out of them. One must also understand that the trading mindset leads to reactive transactions based on market news and market sentiment. Lot of unsolicited information through TV channels, websites and radio may harm your portfolio.
Invest in good businesses and sit tight. It is the time in the market that will grow your wealth once you have done the homework before investing. Mind your temperament: You should know your investing strengths and weaknesses, likes and dislikes before you invest. Do you analyze the products that you are investing in before you actually invest? Or do you invest following some trends? Or are you investing to follow the crowd? Investors can, by their own behavior, make asset ownership highly risky. And many do. Attempts to 'time' the market movements, over or inadequate diversification, and the use of borrowed money can destroy the returns of your portfolio. It goes against wisdom to buy when everyone is selling and to sell everyone is buying. However if you are a value investor, you would look for opportunities in stocks and equity mutual funds. It’s the discipline and investment philosophy that makes all the difference in your portfolio.
Understand what you know Vs what you don’t: You should be able to distinguish between what you know vs. what you don’t know. There might be tons of opportunities out there however if you can’t understand any of them or obtain a professional unbiased advice on them, you must avoid investing in them at all costs. Warren Buffett sat on tens of billions of dollars of idle cash during the technology boom of the late 1990 but did not play, because he admitted that he did not understand technology, even though Bill Gates was one of his friends.
Happy Investing
Source:Moneycontrol.com
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