Experience is the ultimate key to investing success, says Warren Buffett.
And he should know, especially as one of the world’s richest people.
Invest in Yourself First
“The best investment you can make is in your own abilities. Anything you can do to develop your own abilities or business is likely to be more productive,” he says.
In short, if you truly want to be a successful investor – you’ll need to invest in yourself. If you don’t have the expertise to make investments then the best place to start is by gaining that expertise. People don’t become great investors overnight; it takes planning and careful implementation of that plan.
There is No Need to Take Big Risks
Investing is about making smart decisions not about taking big risks. According to Buffett, make investments based on what you know.
Buffett cautions that you should never invest in businesses that you don’t fully understand. He says that if before he invests in the stock of a company, he has to first understand how the company makes money and the main drivers that impact its industry in no more than 10 minutes. If he’s not able to understand it in 10 minutes, he moves on to evaluate another company.
Cash is Not an Investment
“We always keep enough cash around so I feel very comfortable and don’t worry about sleeping at night. But it’s not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially.”
That makes sense. With inflation, the value of cash decreases over time.
Never Follow the Herd
You want to be greedy when others are fearful. You want to be fearful when others are greedy.”
Another common mistake made by new traders is that they blindly follow the herd and wind up chasing the wrong stocks because everyone else is. We buy because everyone else does. We sell because everyone else does. But we never question what we’re really buying or selling, which can be quite costly. Instead, we take the leap simply because everyone else is doing it. And if everyone else is doing it, it must be right. Right? Well, not exactly.
Unfortunately, more times than not, it can lead to failure.
Learn from Your Mistakes
Even Warren Buffett makes mistakes he makes sure that he learns from his mistakes. Buffett advises keeping a record of the mistakes you’ve made so that you know what went wrong and make sure you don’t repeat them again.