Archive for June, 2014

Investing Tips from the Man, Warren Buffett

Want to know the biggest reasons that you should take Warren Buffett’s investing advice? It’s simple; if you had purchased a $10,000 stake in  Berkshire Hathaway  back in 1965, you’d have approximately $80 million right now.

Over the last almost 50 years the man has been practically infallible and, in a recent annual letter to his stockholders, the master investor explained how he’s able to do it, and how others can do it as well.

One of his biggest pieces of advice is simply to stay as liquid as possible. In his annual letter Buffett wrote that  “we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.”

His advice was also that, when everyone else is selling, it might be just the perfect time to buy. “We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. . . . Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble,” he wrote.

On the other hand, Mr. Buffett also believes that, even when everyone else is buying, there sometimes no good reason to join them.  “Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance,” he wrote. In other words, patients is definitely a virtue. If you’re going to buy when all others are selling, you also have to have been the person that held back when everyone around you was buying.

Buffett also believes in buying stocks that have real value, and then holding onto them for the long run. “In the end, what counts in investing is what you pay for a business — through the purchase of a small piece of it in the stock market — and what that business earns in the succeeding decade or two,” he wrote in his letter.

One of Buffet’s best pieces of advice is to be wary of stocks that you can’t evaluate, no matter how big their growth may be. He reminded investors that he and Charlie Munger, vice-chairman of Berkshire Hathaway, “avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be.”

If you look back at history his advice is quite sound. Anyone who invested in 1910 in the quickly growing automobile industry, or in 1930 with airplanes and 1950 with televisions, fared very poorly even though all three of those products completely changed the world. In other words, just because a company’s stock is seeing dramatic growth doesn’t mean that high profits and returns on capital are going to be the result.

Another gem from Buffett is to understand exactly what you own. Buffett wrote that “Investors who buy and sell based upon media or analyst commentary are not for us,”  adding that “We want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it’s one that follows policies with which they concur.”

One last bit of advice that the master offered to his pupils was basically that, as in the NFL, defense usually beats offense. “Though we have lagged the S & P in some years that were positive for the market, we have consistently done better than the S & P in the 11 years during which it delivered negative results. In other words, our defense has been better than our offense, and that’s likely to continue.”

 

4 Investing Tips for Beginners

If you’re new to investing there are a lot of things that you need to learn in order to safely start investing your hard-earned money and using it to make more. That being said, the 4 Tips below should get you started. Enjoy.

The first is simply to use the acronym KISS. No, we’re not talking about the rock band but the old adage Keep It Simple, Stupid. What this means is basically that you shouldn’t try to do everything at once or jump into the deep end of the pool. Many people who are new to the investing world tend to trade too often, try to predict the unpredictable or focus on data that’s irrelevant. By keeping things simple, like focusing on a required margin of safety when buying and investing for the long-term, your odds of success will increase exponentially.

The second is to go into investing with the proper expectations. The fact is, unless you’re an extremely lucky person, you’re not going to double your invested money in the next year using stocks. You certainly could take on a much larger amount of risk, buy extensively on margin or take a flyer on a chancy security but, if you do that, you’re not investing anymore you’re actually speculating. Having the proper expectations will help you to invest wisely and keep your risk at a minimum.

Tip number 3 is simply to prepare yourself to hold on to your stocks for a long time. The fact is that stocks can be very volatile and go up and down according to knee-jerk reactions in the market. As anyone with a little bit of experience could no doubt tell you, it’s absolutely maddening to try and predict the market in the short term. Many new investors still try to do this however and can quickly grow frustrated. As a new investor your best bet is to be patient, focused and diligent, knowing that the market will, in the long run, usually produce good results.

Finally there’s Tip number 4 which is to tune out the market noise. Frankly there are dozens of media outlets that will be competing for your attention, most of whom will be focusing on daily price movements of the various markets as well as making guesses as to why their prices went up or down. The fact is that these changes, for the most part, don’t represent any real value change but instead the volatility which is inherent in the open market. The investor who’s able to tune out this noise will be able to focus on what’s really important, the performance of the companies whose stock they own.

The fact is that, much like you won’t be able to become a better football player by simply staring at stat sheets, your skills as an investor won’t improve by looking at charts or stock prices. The way to improve is to get to know the company or companies that you have invested in, have patience, keep your risk low and focus on what’s most important, the long-term growth of your assets.

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