What All Investors Can Learn From Warren Buffett

Wise tips from the “Oracle of Omaha.”

By John M. Longo, PhD, CFA On Jun 29, 2017

Warren Buffett, the “Oracle of Omaha,” is generally regarded as the greatest investor ever. Part of his charm is his folksy, down-to-earth demeanor combined with his penchant for dispensing King Solomon-like wisdom on financial related topics, readily understandable to the lay investor. Here are a few nuggets of wisdom routinely shared by the Oracle over the years.

Stay Within Your Circle of Competence: Buffett only invests in companies he understands because he believes he is less likely to make mistakes with these firms. His circle of competence includes financial and food and beverage related companies, such as Wells Fargo, Coca-Cola, and Kraft Heinz. Your understanding of a company may come from working in the industry or through the use of its products or services.

Buy Investments at a Discount: We all like buying things on sale when shopping, but the reverse is often true when purchasing investments. Many investors get nervous when their investments are falling, fearing the worst lies ahead. Instead, consider a falling market the equivalent of a coupon – the opportunity to buy a product (or in this case, shares of a company) that you like on sale.

Have the Right Temperament for Investing: Many investors make mistakes that negatively impact their performance, such as chasing past winners and panicking and selling near market lows. Buffett has said, “The most important quality for an investor is temperament, not intellect.” He is willing to go against the crowd and doesn’t worry about “keeping up with the Joneses.” One of his most famous quotes is, “You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.” He put this maxim to work during The Great Recession, earning billions from his investments in Goldman Sachs, General Electric, and Bank of America.

Be Bullish on America and Stocks for the Long-term. No one knows what the stock market is going to do over the course of any day, week, month or year. But, over the long-term, according to Buffett, the direction is up. The main reason for his long-term bullishness is the hard working and ingenious nature of the American people and the resultant economic system that has been created. In his most recent letter to Berkshire Hathaway shareholders, he wrote, “This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”

About the Author: John Longo is chief investment officer of Beacon Trust, a Morristown-based wealth manager, and a professor of finance at Rutgers Business School. He has led students on four separate occasions to a personal meeting with Warren Buffett in Omaha, Nebraska.

 

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