Wall Street Wisdom: Wise Words from Warren Buffett and Other Great Investors
You can learn a lot from those who have come before you. For individuals interested in investing, especially those new to it, learning and applying the wisdom from people that have found techniques that worked for them is a great strategy because their methods may also benefit you. Here are ten tips from the world’s greatest investors that they used to pursue their financial goals.
Preserve Your Wealth
- Warren Buffett – “Rule number 1 is never lose money. Rule number 2 is never forget rule number 1.”
The quote above, by American investor and the founder of Berkshire Hathaway, Warren Buffett, is considered his golden rule. He is conveying that an investor’s priority should be capital preservation instead of going for capital growth with a full head of steam.
Do Your Research
- Benjamin Franklin – “An investment in knowledge pays the best interest.”
Benjamin Franklin, one of America’s early investors, co-founded a newspaper and began investing in land. A savvy investor and lifelong learner, Franklin is well-known as a strong advocate of investing in knowledge and education. Acquiring relevant knowledge is one of the critical fundamentals of sound decision-making. Thus, making choices based on insight is essential when managing risk, mitigating error, and investing strategically.
Understand What You Own
- Peter Lynch – “Know what you own, and know why you own it.”
According to American investor and mutual fund manager Peter Lynch, wise investors should always keep the reasoning behind their investment strategies in mind. You may have a friend or a family member who has mentioned purchasing a stock or investment instrument, and when you ask why they did, they respond, “I read on the internet that it was selling at a good price.” What Lynch means is to educate yourself about the company (what do they do, where, and how do they go about manufacturing products or managing services), research the health of the company, for example, learning about and analyzing the price-to-earnings ratio (the current share price relative to its per-share earnings, and the beta to determine how much risk is involved with purchasing the stock compared to the market), the efficiency of the officers, and the competitive advantage of the products or services in the market.
- Shelby M.C. Davis – “Invest for the long haul. Don’t get too greedy, and don’t get too scared.”
Being patient is also a common subject well-articulated by the world's great investors. Shelby M.C. Davis, an American philanthropist, retired investor, and money manager, also values patience as a crucial fundamental of investing. Too often, people want to go for the quick buck or see the market begin a downward trend, get nervous, and pull their money out. Historically, the market has always balanced itself out over time and continued to trend upward. Learning to be patient is critical if you are interested in wealth preservation and growth as an investor.
Don’t Be an Emotional Investor
- Carlos Slim Helu – “Courage taught me no matter how bad a crisis gets…any sound investment will eventually pay off.”
Mexican business magnate and investor Carlos Slim Helu makes an essential point about investing. Despite market downturns now and then, if you have solid investments, they could eventually bounce back. Keep your emotions on the back burner and trust in the quality of your investments.
All Investing Involves Risk
- Mellody Hobson – “The biggest risk of all is not taking one.”
President and co-CEO of Ariel Investments, Mellody Hobson, touches on a factor of investing that affects all investors, the fear of losing money. All investing involves risk; however, there are ways that an investor can mitigate this risk with careful research and consulting a financial professional who can help work towards a strategy that will work for you as you pursue your financial goals.
- Benjamin Graham – “The individual investor should act consistently as an investor and not as a speculator.”
British economist, investor, and mentor to Warren Buffett, Benjamin Graham, cautions against investors being speculators and trying to predict the future or guess on investments. The renowned father of value investing instead encourages being thorough and logical in investment strategy.
Have a Strategy
- Abigail Johnson – “I demand pretty aggressive goal setting and a commitment to measured progress toward those goals because I don’t like surprises. I don’t even like good surprises.”
Abigail Johnson, CEO of Fidelity Investments explains the importance of having a strategy and sticking to it regardless of what the market is doing in the short term. A plan that is conducive to your risk tolerance, investment goals, and personality can help you navigate uncertain times and market volatility and will help to keep “surprises” to a minimum.
There are Benefits to Investing Early in Life
- John C. Bogle – “Enjoy the magic of compounding returns. Even modest investments made in one’s early 20s are likely to grow to staggering amounts over the course of an investment lifetime.”
American investor and founder and chief executive of The Vanguard Group John C. Bogle suggests beginning your investing journey as young as possible. Over time the money will accumulate, and an investor can discuss suitable techniques with a financial professional like reinvesting dividends, to get as much out of their money as possible.
- Allison Vanaski – “You must be able to set aside money today, for some point in the future when you won’t have an income.”
Allison Vanaski, Senior Financial Planner and VP of Investments with Arcadia Wealth Management, talks about the importance of discipline when it comes to creating wealth. People often claim that they don't have enough money to invest. However, you can cut back on some things in terms of day-to-day spending and invest that money instead. This requires a certain amount of discipline, along with continuing to add to your portfolio without taking money back out to spend it.
Taking action is another characteristic that all great investors have in common. They recognized an opportunity and moved on it. Consider scheduling an appointment with a financial professional and allow them to mentor and help you as you pursue your financial goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Past performance is no guarantee of future results.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
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