When Warren Buffet gives you advice on how to invest, you listen. Also known as the Oracle of Omaha, he is one of the most famous investors of the last century. He started investing at age 11, became a millionaire at age 32 and is worth $87.3 billion at age 88. It’s clear he knows what he’s doing, and he’s shared his advice in interviews, shareholders’ meetings, and random conversations throughout the years. Here is how you can invest like Warren Buffett.
Diversify Your Investments
Buffett advises investors to “spread the risk” by owning a diverse group of companies he calls “a cross-section of America.” A simple way to do this is to invest in index funds. Each fund has multiple stocks included, but you pay one price for the group. They are generally low-cost alternatives to individual stocks and are diversified for you. Mr. Buffett encourages investors to look at funds that follow the S&P 500 as it has shown steady growth over time.
Invest – Don’t Trade
Invest for the long-term. Mr. Buffett says you shouldn’t buy a stock just to sell it. Back in 1988, he told his shareholders in his company, Berkshire Hathaway, that he wants to hold stocks forever. He reasons that there’s no way to time the market for the best time to sell. Buffett doesn’t advise selling a stock unless you need the money. This is also part of the reason why he suggests not taking out a loan to invest. You won’t be forced to sell early or at all to repay your lender.
Also, he says there’s no right time to enter the market. Buffett’s regular advice is to continue to invest consistently over time, looking for future growth. No matter what is going on in the market, if you buy funds you’re comfortable with consistently, you will likely minimize risk and/or recover any losses. However, investors need to remember that past gains do not always equal future gains.
Learn from Your Mistakes
His simple advice is also relatable, even though he’s one of the richest men in the world. In the video below, Buffett explains how he has learned from his past investing mistakes and why he stays away from airline stocks.
Stocks Aren’t for Everyone
In one of his many interviews, Mr. Buffett said, “If you’re going to do dumb things when your stock goes down, you shouldn’t own stock.” As he’s said before, he wants to hold his stocks forever. Perhaps he meant for better or worse? The market will fluctuate, but Buffett says it can be a great opportunity to invest aggressively. Either way, you have to evaluate yourself before investing and determine if it’s right for you. If you can’t handle risk or are too emotional to handle the fluctuations in the market, then investing may not be for you.
These are a handful of the tips he has shared over the years from his experience. As you grow as an investor, you’ll learn good habits and what works for you.