Ten Investment Lesson from Warren Buffett

InvestmentsAnyone who follows the business world, finance, and investing has heard of Warren Buffett. He is no doubt of the world’s greatest investment minds of all time. His company, Berkshire Hathaway, has an investing track record that is simply astounding. The compounded returns all the way from 1965 has averaged close to 21%. Buffett has offered a ton of advice during his investment career. I will touch into 10 important lessons anyone can learn from his vast wisdom and experience.

 

The first lesson is one of SIMPLICITY. Buffett says that you should understand the business you are investing in and how it actually makes money. That way, you can see when it is a good investment and when it is not by being able to analyze it better.

 

The second lesson is to START EARLY. Start investing in equities at a young age and with the power of compounding interest, you will be able to get rich over time. You will also be able to recover from market drops with a long-term investing horizon.

 

Next, know that CASH IS KING! Cash flow of companies is very important for their probability. Debt can be a killer. Also, if you have cash on hand to invest, then you are able to pick the best investments and buy when the time is right.

 

Fourth, FUNDAMENTAL ANALYSIS TRUMPS TECHNICAL ANALYSIS: understand the financial statements of a company and its intrinsic value, don’t just think you can look at a stock price chart and think it has all the information you need. Over the long turn, the price of an investment will reflect the fundamentals of a company.

 

From the fourth lesson, comes the fifth: BE CHEAP! Buy companies at reasonable valuations. Over time, companies reflect an average valuation. Buy a good company at a fair or even a cheap price. Don’t overpay for your investments.

 

Sixth, BE SELECTIVE when choosing your investments. Buffett once said that you should look at your stock buying like a punch card with a limited amount of punches you can take. Maybe even just 20 over your investing career.

 

Nest, if you are following lessons five and six, FOCUS ON THE LONG-TERM. There are always going to be short-term fluctuations in equity prices. These reflect emotions, bad news, good news, and whatever is the flavor at the moment. Unless the fundamental nature of the business changes, don’t panic and sell, or be in a rush to buy.

 

Seven, DON’T BE AFRAID TO BE A CONTRARIAN. A contrarian is someone who will go against the market consensus or the current investing environment. This could be selling when there is mania and stock prices are sky high and overpriced and then holding the cash to invest in a great company at a cheap price that may just be struggling for the short-term. Or it could be the brave act of buying when everyone is selling because you are getting once in a lifetime bargain pricing on great companies.

 

Next on the list is to BE UNEMOTIONAL WHEN CHOOSING INVESTMENTS. Don’t buy a stock because it is a popular company, or because everyone is buying it. Don’t sell because of the market downturn. Base your decisions on logic and good financial data.

 

Remember this next lesson: DON’T TRY TO TIME THE MARKET! Buffett says Mr. Market is always right. In the long run, prices will return to average valuations, while over the short-term anything can happen. Tune out all the “noise” and information overload you see from the financial press and focus on your plan to find great companies at fair to cheap prices.

 

Lastly, and number ten on the list is to AVOID PAYING HIGH FEES. Over an investor’s lifetime, fees can take a huge chunk out of your overall returns. Look for companies that charge less and take out less in fees. This is sometimes called the biggest secret in the investment world that the average investor doesn’t pay attention to at all. I would lump TAXES as a part of investment fees. Do things that reduce your tax liability which will, of course, boost your returns over time.

 

Buffett stuck to these principles and many more to get to where he is today, Although they may seem simple enough to follow, many of us will get off track. We can hurt our long-term investing track records by thinking we can always beat the market. Even Buffett has not beaten the market one hundred percent of the time. But he was able to whip the market during bad times by not losing big when times are tough. That’s why he is still around today and one of the greatest investors of all time.

 

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Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for Checkworks.com, where you can get personal checks and business checks.

Teaching Kids About Money

Kids and Money

Ideally, one’s financial literacy should have its roots at home. However, the majority of parents are either not willing or are ill-equipped to deliver money lessons to their kids.

 

As the world continues to change, the need for learning financial literacy at an early age has never been more important. If you learned the hard way, it does not mean that your child should go through the same. Teaching children about money while they are still young will give them a better chance of making smarter financial decisions in the future thereby enhancing their chances of success.

 

While a typical child’s money habits usually start to manifest at around the age of 7, you can maneuver them into the right path by starting to teach them basic financial concepts such as saving and spending while they are as young as three years old.

 

You must remember that, as a parent, you are the biggest influence on your child’s behaviors, their financial habits notwithstanding. As such, if you want to help raise a generation of financial savvy and mindful consumers and investors, you not only need to teach them how money works but also how to spend it wisely.

 

Tips on How to Teach Your Kids about Money

 

1. Be an Example

 

You find it cute when the child tries to mimic mom or dad. However, this is not limited to just how you walk or talk, those little eyes are observing and taking in every little thing you do. As such, if you are constantly splurging money in front of them, they are likely not going to give it a lot of respect themselves.

 

The best way is to deliberately display good habits such as creating a budget for whatever purpose right in front of them. Discuss how you are going to use the money and what needs to be left out. This way, they see that money is a serious topic that needs to be approached with respect.

 

2. Teach them about Earning

 

One of the best ways of teaching kids about the value of money is by making them earn their allowances. You should not give them cash just because they are alive. This contributes to entitlement. Instead, allow them to put their sweat into it.

 

Playtime is one of the most valuable things to a kid. Thus, by asking them to sacrifice some of that time and do some extra chores around the house so they can be able to buy that toy they are asking for, they will realize that money is valuable.

 

Moreover, give them a commission on each chore they do around the house. The benefits of this is that they will be more responsible in addition to understanding at an early age that money is earned.

 

3. Teaching about Delayed Gratification

 

Delayed gratification is an effective way of combating the ‘buy now, pay later’ mentality that afflicts most young adults leaving many in credit card debt. To teach this, you have to reinforce the idea that waiting usually pays off.

 

4. Teaching Against Impulse Buying

 

Impulse buying is another bad financial habit that affects most young adults. Teach your child early against it by always creating a budget before you go shopping. Start by outlining everything you are going to buy, the stores you will look into, and the price range for each item.

 

Go online and compare prices from the different stores and clip the coupons together. Give some of the savings you will make from these efforts so they can appreciate the value of bargain-hunting. This process will let them know that planning a purchase is better than impulse buying.

 

5. Sticking to Your Budget

 

Even after teaching them the value of earning money and creating a budget, a child may still make the mistake of spending all of their allowances on a single item and having nothing left for other things. This presents a teaching lesson as you will not give in to their demands that you give them more money. This will let them know the consequences of overspending. They are likely going to be more careful about how they use their money next time round.

 

6. Teach the Value of Saving

 

You obviously get your child toys or dolls regularly. However, when there is one that they really want, use that opportunity as a teaching aid. Set up a process for saving money in a bank account or piggy bank and tell them to save up the money they make from doing their chores. Some toys might be too expensive, and you might have to chip in from your pocket, but this should only be after seeing that they have put a lot of effort into saving.

 

7. Keep Track

 

One of the most important money management skills is knowing where your money is going. As such, have them use a notebook to detail their expenditure. Moreover, give them a file where they can store their receipts and statements. You can then,together, go through these records periodically and discuss where they could have done better while commending them on where they made good decisions.

 

Money management is one of the key pillars of life management. And because success is usually a result of good habits compounded over a long period, it is essential to teach your kids about money while they are still young. Use this article as a guide to offer them the best chances of success in the future.