Warren Buffett are volatile & one of the essential requirements to make money is not to panic & remain confident in your investment decisions once you have made it. One needs to be disciplined & mentally strong to be a successful investor. Not all decisions you make may work out positively. But the lesser number of mistakes you make the better. Here are some thoughts of Warren Buffett that we should keep in mind.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Quality matters. Corrections in the market must be used to buy quality stocks for your long term portfolio. Buying them at a fair price makes sense for long term investors. Good businesses tend to compound their profits and reward the shareholders in the long term. Stick to companies that have exhibited decent business performance across business cycles.
“Be fearful when others are greedy and be greedy only when others are fearful.”
This is one of my favorite quotes. The best way to make money is to buy good companies in temporary distress. Behavioral issues are a big influencing factor for the retail investors. The emotional swings force them to sell out when it is the time to load up more. Warren Buffett makes it clear that the valuations are attractive when no one is interested in stocks and the other way round.
“Someone is sitting in the shade today because someone planted a tree long time ago.”
If you sow the seeds in the form of regular investments and let them compound over a long period of time, there is a fair chance that you will see the wealth being created. One needs to be patient to make money in the stock markets. You may sometimes be ahead of the curve or some businesses may take longer than expected to fructify.
“Price is what you pay; Value is what you get.”
Never forget the basics of business-Profitability, cash flow, competition etc. Thus not only the quality of business but also the price you pay for it. The effort should be to always try & find value in an investment at a price instead of focusing on short term price swings.
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
A lot of times investing is more about common sense and awareness, just keeping your ears & eyes open. It could simply be a new product on the supermarket shelf which you feel could be successful or simply connecting the dots relating to a news article you read. Just follow the basic principles of investing without making the process complicated.
“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
There are no short cuts. Follow the process and the let the time work for you. The results will be more likely to be in your favor. However, if you try to put your money on tips/ day trading and get rich quick tricks then you may see some nasty surprises.
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1”
Equity markets swing wildly from day to day on the smallest of news, rally, and crash on sentiment, and celebrate or vilify the most inane data points. It’s important not to get caught up in the madness but stick to your homework. Stay rational. There is every possibility to make mistakes and some investments may not work for you. It is essential to minimize your losses/loosing trades so that they don’t eat into your winning trades.
“Risk comes from not knowing what you are doing.”
Never invest in a business you cannot understand.Theres are thousands of stocks to invest in & it is not possible for any person to have a good understanding of every topic. Stay away from corporate houses and sectors you don’t understand.
“You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”
It’s not necessary that you need to be active in the markets. Sometimes it’s equally important to sit back and just do nothing during unfavorable market conditions. Learning to switch on & switch off from the markets from time to time is essential to being successful in the long term as markets move up & down.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’