Warren Buffet has had a great run in the financial realms, amassing a net worth of over $85 billion. Reports reveal that he has $128 billion in cash to burn as Berkshire Hathaway’s cash balance grew to record highs. Even one investment tip from Mr. Buffet could make all the difference in one’s portfolio.
Diversification isn’t Always Good for a Portfolio
Buffett says diversification is for people who have little knowledge of investment. A knowledgeable investor should choose securities on a long-term basis and have confidence in their holdings. Many investors diversify their assets because they believe that any one stock might ruin their entire portfolio; but while doing so, keeping track of current events becomes much more difficult.
While over diversification of one’s portfolio is rarely advantageous, a balanced approach to diversification can be of great aid in improving returns of a portfolio. It’s never a good idea to put all your eggs in one basket. The markets can be hopelessly irrational in many instances. In February 2017, Buffet was quoted as saying,
“You want to spread the risk as far as the specific companies you’re in by owning a diversified group, and you diversify over time by buying this month, next month, the year after, the year after, the year after.”
Don’t Be Overemotional as an Investor
Emotional stability, when owning stocks, is something most investors do not have. With emotional control and emotional intelligence, we can deal with external situations such as a market that goes down without panic! In his words, if you cannot control your emotions, you cannot control your money.
Emotional reactions to events often distract one from performing at full capacity when making investment decisions. When one is over emotional, their decision making may be impaired, causing them to make decisions they would not normally make if they were not filled with excess emotions.
Focus on the Right Sources of Information on the Markets
The markets are filled with floods of data sets, many of which are misleading. In order to ensure that you are on top of your game, making the most well-informed investment decisions, you need to have a solid grasp of how to discern between credible news and incredible news.
Buffett believes in the 99-1 rule. Most investors take action based on 1% of the financial news they consume. We sell their shares easily as bad news comes up–e.g. For example, the company’s revenue may have fallen by 10 percent. If in this particular example, the company has been in business for, say, 100 years, then Buffett says it can definitely stand up to such events.
Have Loads of Cash to Invest
If you had piles of cash waiting to invest when the financial crisis hit, you might have bought low and sold high, earning huge profits from your investment of 50 percent to 100 percent. These are some of the advantages of building up a significant level of cash to invest. Mr. Buffet, however, is not a fan of holding on to cash for too long without investing. As his famous letter to investors in 1998 stated: “Cash doesn’t make us happy.”
Invest in Companies, Not Stocks
The investment philosophy of Warren Buffett has always centred on finding successful businesses with reasonably priced shares. He enjoys finding firms in their respective industries with stable, competitive advantages.
Buffett is much more concerned with a company’s core structural stability and management than what is occurring with the stock price of the business. Investors may gain from focusing on companies with durable competitive advantage.
Invest in Yourself
“Learn to communicate well both in writing and in person,” he said in a Facebook video shared in 2018. Honoring the talent will improve the worth by at least 50 percent.
Second, look after your mind and body— especially when you’re young. “If I gave you a car and it would be the only car you’ve got the rest of your life, you’d take care of it just as you can’t believe. You’d fix that moment any scratch, read the owner’s manual, keep a garage and do all these things.
Dividends are Good
Mr. Buffet has a penchant for dividend stocks. Buffett prefers businesses with a long history of charging and even rising dividends over time. The Dividend Aristocrats, which are businesses that have been increasing their dividends over the last 25 years, is a common monitor of this form for inventory.
Do not Day Trade
According to Buffett, buying a stock and forgetting it is the secret to getting a better return on investment. He trusts in a buy-and-hold mindset and has focused for decades on keeping shares. He claims that it will suck away a significant amount of your income in the form of selling fees and taxation if you regularly buy and sell shares. Therefore, it’s better to buy and hold great stocks for a long time.
Calvin Ebun-Amu is passionate about finance and technology. While studying his bachelor’s degree, he found himself using his spare time to research and write about finance. Calvin is particularly fascinated by economics and risk management. When he’s not writing, he’s reading a book or article on risk and uncertainty by his favourite non-fiction author, Nassim Nicholas Taleb. Calvin has a bachelors degree in law and a post-graduate diploma in business.