As a beginner, you may tend to look for investment advice from your friends’ circle, colleagues, etc. We also look for stock investment advice on news channels, the internet, stockbrokers, etc. How about lending your ears to Warren buffet advice?
Warren Buffett proved himself in the investment world for several decades together.
There is no greater wisdom than listening to warren buffett advice when it comes to investing. He knows the art of picking great business & quality investment since from the age of 11. Now he is 92 years old.
Lets pay attention to the words of the “Oracle of Omaha” Warren Buffett himself.
Warren Buffett investment Track record: –
There is no doubt that Warren Buffett will go down as the great investor of all time in history.
For more than 50 years, he is responsible for the performance of Berkshire hathaway and its stock portfolio which has delivered returns above than the S&P 500.
Since 1965, Berkshire shares have seen an average annual return of 20 percent versus the S&P 500 10.2 percent return.
In terms of overall gain, Berkshire saw a 3,300,000 % rise during that time while S&P rose a mere 23,500 %
That means if you put in 1000 dollars on Berkshire hatchway either because of your intuition or trust in Warren’s management skills & smartness, today the 1000 dollars would be worth more than 30 million dollars.
In Feb 1980, the share price of Berkshire Hathway is $275. After 42 years, on Feb 2022 the share price of Berkshire Hathway is $ 472250.
Note: I couldn’t get the price of 1965, hence 1980 data is used.
Warren Buffett investment advice: –
In 1999 at the annual shareholder meeting of Berkshire Hathaway while his net worth was $30 billion at that time.
One advice warren buffett gave to his listeners is to start early.
He compared wealth building to rolling a snowball down from a high hill. As time passes, the snow ball becomes bigger and bigger while going down.
Buffett said” I started building this little snowball at the top of a very long hill”
The key is to start investing in the early twenties. If not, then the best moment is right now!
If you think your twenties are to chill and spend all the money. Remember, Buffett started his investment journey at the age of 11 and he consider the previous years of his life had been wasted.
Case 1: If you invest $1000 at the age of 20 and forget it till you hit 60. The rate of return is 12 percent and $1000 would become $ 93050.
Case 2:If you invest $1000 at the age of 30 and forget it till you hit 60. Considering the rate of return is 15 percent per annum and the final value is $ 66211.
Investing early gave an additional $ 27000 (approx.) , though in case 2 rate of return is 15 percent.
Read more about How much Warren Buffett made from Coke investment?
Circle of competence
It is simple. Each of us through our experience or studies has acquired knowledge on certain areas of the world. Some generic areas are understood by most of us, while some areas required a lot more subject knowledge to evaluate.
Many of us know the basic understanding of restaurants or coffee shops that runs their business from buying or renting a space, furniture, hiring and training workers, procuring raw materials, etc.
This basic knowledge and little accounting help us to study and evaluate different restaurant businesses before investing. It is not that complicated at all.
How about the functioning of a specialty chemical company or microchip manufacturing business? Can most of us could evaluate it unless we are from that background? Probably not!
Staying in our specialty and understanding is a circle of competence. Warren Buffett emphasized about circle of competence.
Bad things tend to occur when we leave or stray from our circle of competence due to FOMO. (fear of missing out)
Buffett explained: “Every investor needs to rely on their own knowledge and intuition when searching for promising businesses to invest in. He added that savvy investors would do best to “learn what you know and what you don’t” and act “very vigorously” when they see something they consider to be a good opportunity.
“You can’t look around for people to agree with you,” Buffett said of putting money into an investment. “You can’t look around for people even to know what you’re talking about.”
Portfolio of warren are consists of simple , high quality business held for a very long long time…
Every individual has a circle of competence.
Good News is our circle of competence can be widened, but only slowly and over time. An investor tends to make a disastrous mistake when they invest out of their circle of competence.
What is your circle of competence?
If you are a banker or finance background, you very well know how banks and Non-Banking Financial Company makes money.
If you are a software engineer, you know how IT service companies like Infosys, TCS operate. Also product firms like Oracle, adobe falls in your Circle of competence.
If you are an automotive engineer, you know how Original equipment manufacturers like TATA Motors, Maruti, Escorts conduct their business. Tier 1 players like Bosch, Lumax, varroc, etc also come under your circle of competence.
By staying in your circle, you can do very well in the long haul with proper risk management.
Invest in Index Fund
Mr. Buffett is an active supporter of investing in an index fund. warren Buffett investment advice to average retail investors is buy and hold index fund than investing in actively managed funds.
Index fund holds many securities based on their market capitalization (In ascending order) from various industries, making them automatically diversified. Index funds acts on rule and simply cut out emotions.
To build wealth, investors should “consistently buy an S&P 500 low-cost index fund,” Buffett said in 2017.
“Keep buying it through thick and thin, and especially through thin.”
Investing in an index fund is a sure-shot way to build wealth if you don’t have time in studying, researching and choosing individual stocks.
You are buying a batch of stocks by investing in an index fund and it produces an average return on market. So you don’t need to break yourself up to beat the market benchmark returns.
Because you are investing in the market benchmark itself. Also, Buffett had stated in various interviews that his trustees should move 90 percent of portfolio to low cost index fund , 10 percent as cash after his death.
How Index fund performed?
Since 1957 the S&P 500 has generated an annualized return of 10.67 % till Dec 31, 2021.
What if you invested $1 in 1957?
Today, the return on $1 is $891. That’s a terrific return!
No wonder Mr. Warren Buffett advice , wisdom has a huge following.
Nifty 50 has generated an 11.7 percent annualized return in the past 25 years.
Your 100 rupees invested in Nifty50 25 years ago would become 1589.75 rupees.
That’s 15X of your initial investment.
Whether you are a veteran investor or rookie investor, doesn’t matter.
Warren Buffett investment advice holds true even after several decades have passed by.
Buffett has not given stock tips or become rich overnight ideas, but he has given timeless investing wisdom and advice for retail investors.
“ He who acts on the wisdom becomes wise”
It is not just by listening we will become wise but by taking action on the advice given we will become wise.
Warren Buffett investment advice has made a lifetime impact on me. What are pieces of Warren Buffett advice made an impact on you? Please share in the comments.
Thank you for reading!