Investing Advice from the Greatest Investors
Investing is a great step to financial freedom. Many people have achieved success and riches through making the right investments. Of course, there are several investment options, but they all have the same goal of earning you money while you do nothing. In my years as an investor, I have grown through reading the lifestyles of various experts and successful investors. I can say with confidence that I have gathered information well that has truly been useful. Hello, and welcome. I am your host on this channel dedicated to bringing you the best of knowledge in finance, stocks, investment, and money management.
In this post, I will be presenting investing advice from the greatest investors. This, as I said, are things that have helped me grow, and I believe that they will be useful to you too. I always say that as an investor and generally for a healthy lifestyle choice, reading is essential. In my post ‘8 Goals That Will Help Improve Your Life In 2020‘, I explained why reading should be a monthly aim to help you to succeed. It is because of my relentless reading and research that I have been able to compile these points for you. Let’s get to it.
Overtrading: This concept is referred to when people are incessantly trading. Now investing is good, but over investing and over trading is not wise. Warren Buffet said “We believe that according to the name, ‘investors’ and institutions that trade actively, it is like calling someone who repeatedly engages in one night stands a romantic”. “Nor do we think many others can achieve long term investment success by flitting from flower to flower.” What he means is that an investor will not be one who trades daily and hourly and long term success can not be achieved if you regularly move from company to company.
Yearly analysis of investor behaviour made by Delbar focuses on the twenty years from 1996 to 2016. Their analysis shows that the S&P got an 8.2% average yearly return. But the everyday investment could not get any higher than 4.67% over that same 20 year period. The reason for this low percentage is because the everyday investor holds on to equity for no more than three or four years. The summary is if you hold on for more than ten years, you are more likely to make better profits.
Another investor Jim O’Shaughnessy tweeted and said that the best thing to do as an investor is not to get swayed by the markets’ various rise and fall. He implies that although it might be dull and boring, the best thing to do is nothing when investing. The conclusion here is to be patient because as long as you don’t sell your stocks, you can’t lose. No matter how horrible the economy gets, don’t sell. And even if you have to sell, let it be because you want to and not because of the market situation, In my post ‘sell, hold or buy in the present stock market’ you can see some of the reasons why sell could be okay.
Need for returns: Warren Buffet says that fear and greed in the stock market is like a contagious disease. He says that “Therefore, we never try to anticipate the arrival or departure of either disease. “We attempt to be fearful when others are greedy and to be greedy when others are fearful” When looking at valuations, let’s look at the S&P 500 forward 12-month P/E Ratio for the last 20 years. This chart divides the index price of today by a twelve-month earning forecast derived from the broker forecast. That is a measurement of every dollar individuals will spend for each dollar of forecast profit when the market prices are high. Taking the dotcom bubble incident, many investors were willing to spend 23 dollars for every one dollar profit they were to make.
Investors were willing to spend 8 dollars on each dollar earned during the crisis of global finance. This shows that the market is very costly at the moment, which has given rise to people paying more for a smaller return. The rise in global finance had resulted in equity becoming cheap. This is why no huge purchase has been made by Buffet recently because finding bargains has become extremely difficult.
Observing the trend in price in the S&P 500 in recent years is another approach to be taken. Over a century, during this period, investors observed that the trend in price was averagely steady, though, above the trend and below the trend, there are price fluctuations. Without a doubt, the S&P 500’s price is the upper line, and it is also true of the earnings made by the S&P 500. Furthermore, in the market terms of Buffet, it shows that investors aren’t content with the income they generate from the market, which might lead to his being fearful.
Think Long-term: As an investor, you must have an emotional forecast and perspective of the future. According to Buffett, “no matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant”. A perfect story that shows an illustration of how Buffett was enduring was when he purchased the Coca-Cola. Having a taste of it for the first time in 1935 or 1936, he decided to make a business out of it. He bought it at the rate of 6 bottles for 25 cents and then sold each in his neighbourhood for 5 cents.
He observed his customers and saw how attracted they were to the product. In 1988 Buffett purchased $14 million worth of shares from Coca-Cola. The share’s proportion was a high one. From his major purchase of the Mac and Coca-Cola in 1988, he said the securities are expected to be held over a long haul, not being in a hurry to sell off to earn profits but remain glued to the business forever. In a summary of this, Buffett is trying to lay more emphasis on being patient when certain stocks are purchased. Holding them for a longer period would yield more profits than hurriedly selling them off.
Active Management: The ability to make selections of stocks that outperforms the stock market is important. High fees, being one of the things Buffet hates most “will usually make the managers make profits that are outrageous, leaving the customers out”. He then heads an idea that both small and large investors should stick to low-cost index funds”.
He explains low fees in two forms; A passive investor will gain a middle result before cost because they buy the bulk of the market. While an active investor will become a part of the bulk of the market where they also will get an average result before the cost. Whoever between these two gets the lowest cost ends up the winning party that makes great returns. The result of this is that many active managers who claim to be great pickers of stocks are in no way what they think.
From Buffett’s explanation, it’s advisable for active investors to become passive. He further made it known that being a high-fee manager that is worth the payment that is being received would only last for a short period.
Diversify: As described by Day Dalio as “The Holy Grail”, diversifying your investment reduced risk. The Holy Grail implies that you achieve a maximum return while engaging in little risk. The higher the assets purchased, the lesser the risk involved. When you diversify your investment, the probabilities of forfeiting capital would be more reduced than if your investments aren’t diversified. When you invest in various assets, It is impossible to know which one would yield the highest income. Diversification is a key strategy against risk and a greater way to earn multiple incomes in one sitting.
Beware of forecasts: Charlie Monger, a long-term associate of Buffett, once implied that it is good to be cautious with the projections made concerning a stock because it might be wrong. Again, Jim O’Shaughnessy also shared his point about it, saying, ‘Active investors generally ignore forecasts and predictions.’ And finally, Buffett himself said, “forecasts and projections are illusional, which can be confusing; therefore, there’s no use for them” this means that forecasts can be inaccurate at times. These professional investors are not saying you shouldn’t listen to these forecasts; they say be careful of trusting 100% in them and what they propagate.
There is so much to understand when it comes to investing, but these investment gurus have given us useful points that can be a steady guide through the part to investment. Thank you for staying until the end. If you found this content useful, then, by all means, let me know in the comment section.
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Recommended for further reading:
- The Warren Buffett Way
- Shares Made Simple: A beginner’s guide to the stock market
- Smarter Investing: Simpler Decisions for Better Results
- Intelligent Investor: The Definitive Book on Value Investing
- The Five Rules Successful Stock Investing