scorecardresearchWarren Buffett's 9 investment lessons for a volatile market

Warren Buffett's 9 investment lessons for a volatile market

Updated: 25 May 2022, 12:08 PM IST

Warren Buffett’s simple investing strategies are easy to understand and easier to implement only if you have the acumen, patience and mindset to do so. 

Riding the investment journey with Warren Buffett's ideas

Riding the investment journey with Warren Buffett's ideas

Warren Buffet’s investment theories are widely read and recommended not only for the value they offer but because his principles have stood the test of time irrespective of how many times the world markets have fallen, risen or moved sideways.

Unlike most theorists whose views are beyond common understanding, Buffett explains in plain layman’s language his simple investment strategies and how his constant learnings about the market since he was 11 years old have never failed him to date.

He shares nine simple lessons in investing for all of us to follow, but there is a caveat. These principles though look simple at the outset are hard to follow. This is because how you invest depends a lot on your mindset. These lessons include:

  • Risk comes from not knowing what you are doing: Step into the market to invest only when you are aware of your investment options, products and strategies. This applies to all, whether they are investing in stocks or cryptocurrencies. Learn about these asset classes before you park your money in them. Remember the age-old adage “All that shines is not gold.” This is true of many investment opportunities that may look enticing at the outset but may not serve your financial goals or cause you to lose your money in the long run.
  • Have an owner’s mindset: Remember that stock represents part ownership of a business. When you are investing in stocks, you are putting your money in a part of a company’s business, which is why you must be aware of what the company does, its nature of business and the profits it anticipates. Also, check the company’s fundamentals to gauge its longevity in the long run. Exercise prudence as you would while buying a new business.
  • Save for a golden rainy day: Parking your money in quick-rich schemes is the surest way to get poor quickly. Irrespective of how much you earn, take care to protect your money. For this, start by living a frugal life. Every time you yearn to spend money on unnecessary items or pay extra for a branded product, refrain from wasting that money you may need in future. Apart, every penny saved today can be used to buy some good stocks that will help you earn loads in future.
  • Time is the friend of the wonderful business: Take time in your stride and see how it works its magic on your stocks. No doubt you can never time or tame the market, but the time you spend with your investments will decide how high they would go or the extent of profits you would earn from your investments. It is important that you adopt a long-term investment approach to buying and selling stocks.
  • Keep it simple: All good things need not be complicated. Buffett’s every single move or strategy has a mark of simplicity in it, which makes it all the more awesome. His investing framework is simple. Buy good stocks at low prices and wait for the market to rise. Once you realize that a stock has reached its potential, sell it to book profits.
  • Be fearful when others are greedy: The stock market has its share of ups and downs. The bulls outrun the bears while at times the bears tend to dominate the bulls for a long period. The constant tussle causes the market to move sideways at times. This constant undulating movement sends the investors into a tizzy as they find it difficult to predict which direction the market would sway next.

    However, when good stocks are available at considerable discounts during the bearish phase, it is time to take bold decisions. Firstly, do not get rid of your stocks just because others are selling. Rather use your extra cash to invest in cheaply available stocks. The vice versa is also true. However, beware of trying to catch a falling knife. Do your research well to ensure that you buy stocks of fundamentally sound companies before putting your money into them.
  • Never invest because a company is cheap: Just because a stock has fallen to its 52-week low price, it does not mean that you must rush to grab it. Focus on value investing rather. A cheap investment may look cheap but may not translate into a profitable investment.
  • Never use borrowed money to buy stocks: Never resort to taking debt to finance your investment journey. Market movements can be random, which means that you are putting your money at stake in a system that may not move as per your financial goals. A major dip in the market can wipe out your whole capital, thus, burdening you with the liability of having to repay the amount from your savings.
  • System overpowers the smart: When you are not sure of which stocks to pick, opt to put your money in a low-cost index fund. This will do you much good as you opt for a disciplined investment habit via systematic investment plans (SIPs). The benefit of putting money in an index fund is that your investments are automatically in tune with the market movement. Considering that index funds are passively managed, they are mostly free of fund manager bias. All you have to do is invest regularly and stay invested for a prolonged period.

These are investments that can beat inflation. 
First Published: 25 May 2022, 12:07 PM IST