Warren Buffett, 87 is a self-made billionaire and one of the richest person in the world. Investment advice and learning from Warren Buffett, if followed correctly can make you wealthy. We have seen an example how Mohnish Pabrai became wealthy by copying investment strategy of Warren Buffett.
In his recent letter to shareholders of Berkshire Hathaway, he has given a very good piece of advice about stock market investments. Let’s take a look at what Warren Buffett advise us about Investments.
Warren Buffett Advice to Stock Market Investors
- How to buy stock or business?
On acquisition of businesses and stock Warren Buffett Says, “The key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.”
So, following qualities are must for the selection of stock –
- Competitive Business
- Superior Management
- Growth perspective
- Return on Investment
This is what you should follow while selecting a stock for investment. However, it is generally seen that due to lack of time and knowledge, stocks are purchased based on tips from a stock broker, advice from friends or relatives. Investing based on someone advice means inviting losses for yourself.
If you follow Buffett’s advice while selecting a stock you will definitely get a success in the stock market.
- Long-term Investment – Stay Invested in Good Stocks
When it comes to long-term investment Buffett Said “Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their ‘chart’ patterns, the ‘target’ prices of analysts or the opinions of media pundits. Instead, we simply believe that if the businesses of the investees are successful our investments will be successful as well.”
This clearly indicates that one should stay invested in good stock for the long term. Buy right hold tight. Rakesh Jhunjhunwala and Porinju Veliyath also follow similar investment strategy. But, most of the investor does not understand this. They track stock price movement and participate in trading for short-term gain.
- Never buy stock with borrowed money
Warren Buffett says that “There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”
One should never invest money in the stock market by using borrowed capital. The reasons are –
- You need to pay interest on borrow capital. Your interest amount may not be higher than return from stock market.
- Stock where you are investing money can correct any time. You may react on negative news of stock market correction and end up making loss.
Also Read – How to become rich – Quick Tips by Warren Buffet
Over to You –
What is your take on Warren Buffett advice about the stock market?
Do you think following advice of Buffett can make you wealthy?
Do share your views in the comment section.
You can read Buffett’s letter on Berkshire Hathaway website.