Warren Buffet’s top 3 investment tips
Invest in what you know
If you can’t understand it then you probably shouldn’t be buying it. Focus on buying investments that you understand. There are tens of thousands of publicly traded companies, investment funds and ETFs to choose from, do your research and pick the ones that make sense to you.
Most news is noise
Media companies sell newspapers by creating fear and sensationalising stories. If it bleeds, it leads. Don’t let them suck you in and alter your investment choices. If you were to take the advice of news pundits every day you would be forever buying and selling investments. Have faith in your decisions. You also need to question whether the talking heads actually know what they are talking about; everyone remembers Jim Cramer declaring Bear Stearns a safe investment moments before it went bankrupt.
Price and value are not the same
Whether you buy direct stocks, or you invest in a mutual fund / ETF, you are usually buying a share of a revenue generating business. The price of a stock is much more volatile than the fundamentals of that business. This provides opportunity and risk for investors. During crashes, stock prices will often fall further than current and future earnings, which creates value and a buying opportunity. Conversely, an increase in stock price doesn’t always mean its revenue is going to grow at the same rate, this can lead to stocks being overvalued. As an investor you need to learn the difference between price and value.
There are many investment models that you can follow. Find one that makes sense to you and have the discipline to follow it. If you are unsure about investing on your own then you should consider using an professional financial advisor. You can read my article on how to choose a financial advisor here.
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