Billionaire investor and Berkshire Hathaway CEO Warren Buffett publicly discussed countless investing concepts over the years. Known as the Oracle of Omaha, he is one of the most successful investors of all time whose investment tips have been widely followed.
Dr. Christian Koch recently published a study for a doctoral dissertation project at the University of South Florida focusing on Buffett’s investment tips through the years entitled “Warren Buffett: A Practical Understanding of Financial Literacy Extended to Managing Investments.”
According to Dr. Koch, Buffet offers “unconventional success to the fundamental approach to managing investments.” With 2020 bringing unprecedented changes, Dr. Koch, CEO of investment-manager KAM South, said financial planning is in more demand as individuals and financial markets react to the pandemic.
Koch’s analysis of Buffet’s approaches has yielded eight critical findings which he said are well-suited for industry, practitioners, and investors to make better, more informed investing decisions.
Here are eight of Buffet’s key tips for investors, based on Dr. Koch’s study:
1. Holding cash is always the “default option” if there’s nothing smart to do.
2. Take advantage of compound interest to make your money grow faster. Buffet said it behaves like a “snowball of sticky snow.”
3. Be wary of inflation, which Buffett calls “the investor’s enemy”. He said the best defense against it is personal earnings power, and the second-best hedge is owning a wonderful business.
4. Keep a close watch on the “Buffett indicator.” This ratio, which measures the total value of all listed equities in the market relative to the total size of the economy, can be used by investors to help them determine whether stocks are overvalued.
5. Holding shares is owning a business. When buying shares, Buffett looks at himself as a minority owner in the company and takes a long-term view of its prospects.
6. Be patient. Buffett reminded investors that having the patience to wait for the right opportunity is vital.
7. Control your emotions. Buffet said investors “have to have an emotional stability that will take them through almost anything.”
8. Beware of stampedes. Buffett flagged the risk of mass panic and everyone rushing for the door. “There is an electronic herd of people around the world managing huge amounts of money who think that a decision on everything in their portfolio should be made, basically, daily or hourly or by the minute.”
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