Advice from Warren Buffett: 3 tips for new investors
There is no doubt that Warren Buffett is one of the greatest investors of all time. Plus, he’s one of the best people for new investors to seek out, to find out how he did so well.
He bought his first stock when he was 11 years old, giving him 80 years of incredible investment experience. And dating back to 1965, his company, Berkshire Hathaway, grew at an astonishing compound annual growth rate (CAGR) of 20.1%. Which almost doubles the rhythm of the S&P500 over this period, which increased at a CAGR of 10.5%.
Moreover, the total gain for Berkshire Hathaway over those 56 years is over 3,600,000%, all thanks to compound interest.
These gains are truly impressive and make Warren Buffett one of the best investors to study if you are a new stock market investor.
That being said, here are three tips and things you can learn from Warren Buffett’s incredible career.
Allow your investment strategy to evolve as you gain experience
When you’re just starting out, there can be a lot to learn about investing and lots of different ways to invest your money.
New investors sometimes choose to invest more passively as they learn the ropes of the stock market. However you decide to invest your money to begin with, it is essential that you gain experience and learn how the market works. Eventually, over time, you may choose to change your strategy on how you invest for the long term.
For example, for a long time Warren Buffett was a value investor. And while he’s still looking for value, he’s now more of a growth investor, as long as he can buy the stock at a reasonable price.
Buffett learned several lessons that shaped this philosophy. It also led to one of his most famous investment quotes, which brings us to our second tip.
Look for value, but growth stocks can be among the best investments
While Buffett started out as a value investor, he is now more of a growth investor, as long as the stock price is reasonable. In fact, one of his most famous quotes says, “It’s far better to buy a great business at a fair price than a fair business at an exceptional price.”
While you’re always looking to find stocks that offer the best value, Warren Buffett changed his strategy for a reason. The best companies almost never trade undervalued, and if they do, the discount is usually not very large.
So if you’re only looking to buy value stocks, you’re likely to miss out on buying some of the best stocks possible.
One of Warren Buffett’s most important tips, buy stocks for the long term
Finally, much of Warren Buffett’s advice to investors is about buying stocks for the long term. He has several famous quotes that illustrate how important it is to buy and hold stocks for years.
However, one of the most popular quotes says, “Our favorite detention period is forever.”
Over the years, Buffett has realized that when you find and buy some of the best companies to own, and they continue to have tons of long-term potential to grow their business, there’s no reason to sell.
One of the most popular Canadian stocks, Brookfield Asset Management, gained an incredible 690% from 1997 to 2013, earning investors a CAGR of 14.33% over that period. However, if you had sold after those impressive gains, you would have missed out on all the growth since.
From the start of 2013 to date, Brookfield has achieved a total return of 424%, growing at a CAGR of 19.6%, an even faster rate than before. So when you find great companies, you should plan to stay with them forever.
Often investors buy stocks with an exit strategy in mind and a target price that they think the stock is worth. But the best investments will be companies that have competitive advantages so strong you can buy them and keep them for decades.
So if you’re a new investor and want to learn as much as you can before putting your money to work, studying Warren Buffett and all of his incredible advice is one of the best ways to prepare.