We may all benefit from some investing perspective as we experience increased volatility and rapid decreases across most equity markets. Who better to draw on for that wisdom than one of the most successful investors of our time, Warren Buffett. Many of Buffett’s messages are timeless. In fact, a more recent academic study analyzed years of Buffett’s shareholder meetings, which have attracted tens of thousands of investors from around the world, and confirmed that the Oracle of Omaha’s key messages has recurring themes.1
Here are four:
Don’t overlook the power of patience in investing. After a year of strong performance in the equity markets, it may be easy to forget that success in investing can often take time. Consider that even though Buffett has been investing since he was young, over 90 percent of his wealth was made after the age of 65.2 Time and the power of compounding continue to be the key drivers of wealth creation.
“The nature of compound interest is it behaves like a snowball of sticky snow. And the trick is to have a very long hill.”
Invest with a view for the longer term. When Buffett invests in a company, he views himself as an owner and takes a thoughtful and longer-term view of its prospects. He worries less about what happens in the short term, and focuses on businesses that continue to have a competitive advantage over the longer term.
“Nobody buys a farm based on whether they think it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”
Maintain self-discipline. Buffett has always said that temperament is key to investing. In this digital age, where we are constantly being fed news and opinion, Buffett reminds us that investing requires the ability to detach from the views of others and make decisions based on the facts.
“You need to be able to look at the facts about a business, about an industry, and evaluate a business unaffected by what other people think. That is very difficult for most people…Don’t do anything in life where the answer is, “everybody else is doing it.” If you cancel that as a rationale for doing an activity in life, you’ll live a better life whether it’s in the stock market or any place else.”
Have a plan in place…and stick to it during good times and bad. Buffett has always emphasized the importance of having a plan in place to drive the investment process to prevent emotions from influencing decision making. In strong market times, such as those experienced this past year, it can help to prevent investors from taking undue risks due to the fear of missing out. Risk controls remain an important part of every investor’s wealth plan. In down-market times, adhering to an investment plan can help investors avoid the urge to sell investments because of the pressure from others doing the same.
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
During the height of the pandemic, Buffett offered his views on overcoming the challenges, with a continued view of optimism for the future. These words may be worth reflecting on as we begin another year, with the hope that the worst of the pandemic is now behind us:
“This is a terrible event. But there will be other things that happen in the world in the next 5, 10, or 20 years. That’s how the world works; it’s not a totally even course. The progress of mankind has been incredible and that won’t stop…there will be interruptions, but I also know that we’ll come out better on the other end.”
Thank you to Warren Buffett for allowing us permission to share his timeless wisdom. Please note that the material is copyrighted and has been used with the permission of the author.
1. https://markets.businessinsider.com/news/stocks/warren-buffett-key-investing-tips-holding-cash-patience-shares-business-2020-10-1029698894; 2. Based on shares of Berkshire Hathaway (BRK-A), 8/30/95: $25,300; 11/23/21: $434,921.