It can be argued that Warren Buffet is the most influential investor that ever lived. While it can’t be said that Buffet has a rags to riches story. After all, his father was a successful stock broker and was elected to congress four times. His grandfather was also relatively successful as the owner of a grocery store. Nonetheless, while he doesn’t have a come from nothing story, Buffet has one thing that most others don’t. Buffet has cemented his place as one of the best investors to ever live, making his money grow in multiples by making some of the best calls the market has ever seen.
As an investor, I like to learn from the guys that ultimately made it to where I want to be. Guys like Warren Buffett, Geraldine Weiss, Bill Miller, and a handful of others have reached an elite level of success. So, it’s these investors that I want to learn from. With that said, here are the five most important investors that I’ve learned from Warren Buffett thus far.
Lesson #1: You have to have a tough stomach to be one of the greats!
In what I find to be one of the most important quotes ever uttered by Warren Buffet, the investing mogul once said:
Unless you can watch your stock holding decline by 50% without becoming panick stricken, you should not be in the stock market.Warren Buffett quote courtesy of Money Pantry
When I first started to invest, this was one of the hardest things to wrap my head around. There were plenty of days that I watched my holdings fall dramatically, and the first thing that came to mind was SELL!However, the market is one that has its peaks and valleys. The key is buying stocks that you honestly believe will grow in value over the long term. If that’s the case, even a large decline over the course of a day, week, or even a couple of months will likely prove to be nothing more than a blip on the screen in a long run story of profits. So, if you’re going to invest, buy stocks that are likely to grow in the long run and let the money sit!
Lesson #2: Don’t wait to plant your seeds!
Warren Buffett is all about investing early and riding it out for the long run. In fact, the quote below is a clear example of just that:
Someone is sitting in the shade today because someone planted a tree a long time ago.Warren Buffett quote courtesy of My Money Wizard
The truth of the matter is that if you want to make it in the big leagues, it’s important to start early. At the end of the day, real returns can only be expected over time. In fact, the name of the game in long-term investing is compounding profits. In order for your profits to compound and become meaningful, your investments will need years to mature. So, starting now gives you a head start in this process.
Lesson #3: Base your investment decisions on value rather than action.
Beginner, and even intermediate investors often find the alure of a stock that is moving up to be too much to ignore. However, as the quote below from Warren Buffett suggests, this could be a big mistake:
For some reason, people take their cues from price action rather than from values. What doesn’t seem to work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.Warren Buffett quote courtesy of Financial Freedom Inspiration
The truth of the matter is that price action can be very misleading. A stock that climbs 100% today could fall 120% tomorrow. However, if you make your decisions based on the value for your investment, rather than the potential to see a short term run in value, chances are that you will be far more successful in the market.
Lesson #4: Passive investing is better than active investing.
Warren Buffet is known to be a passive investor, the type that buys a stock and holds it for 10, 20, 30 years or longer. He explains why in the quote below:
Passive investment in aggregate is going to beat active investment because of fees.Warren Buffett quote courtesy of Mustard Seed Money
The truth of the money is that active investing may feel like the way to go. Staying on top of your investments and trying to take advantage of daily trends in the market. However, there are two big problems with this. First and foremost, the market is highly unpredictable when it comes to short term plays. Sure, some moves will be good and some will be bad, but as time goes on, good companies will grow. Think of it this way, if you were to predict when it would rain in the desert, and you said within the next 3 days, chances are that you would be wrong. However, if you said some time over the next 10 years, you’re more than likely going to be right.
The second issue with active investing is that it is expensive. Every broker, from dicsount brokers online to financial institutions, will charge a fee for each trade you make. The more active you are, the more these fees will pile up. So, active investors not only have to wory about the short term lack of predictability in the market, but also the fees that could eat their profits alive!
Lesson #5: You don’t have to go wild with diversification.
Any successful investor, even Warren Buffet himself will tell you that diversification is important. However, you don’t have to go wild here. Here’s a key quote from the investing guru about diversification:
Wide diversification is only necessary when you don’t know what you’re doing.Warren Buffet quote courtesy of Life And My Finances
Sure, diversification is important. After all, you don’t want all of your eggs in one basket. However, you don’t have to go picking 50 stocks to make sure that you are diversified enough. It’s better to pick 5 or 6 stocks that you’ve done your due dilligence on and have strong potential in the long run!
Have you learned any lessons from Warren Buffett?
Warren Buffet is one of the most well known investors, and one that many aspiring investing mogules follow closely. Have you learned any lessons from following Warren Buffet? If so, please share what you’ve learned in the comments below!