Warren Buffett is probably the greatest investor of all time. Many stock market enthusiasts have benefited from his investment tips. Buffett’s investing strategy is straightforward and easy to understand. He not only has investment rules, but he explains principles based on which good businesses operate.
Warren Buffett recommends investors should practice value investing which is where you identify and buy stocks that are trading below their intrinsic value with the potential to derive outsized gains over the long term.
Over time, Warren Buffett has shared a ton of investment ideas and theories that are extremely valuable for new investors. We have picked the top 10 investment tips that will give good returns to investors in 2021.
Long term investment
According to Warren Buffett, if you have planted a tree, someone will sit in the shade after a long time. He basically suggests that investors should buy stocks with a long-term view and benefit from the power of compounding.
He also suggests spending time in making a decision about where to invest. Buffett has a list of around a hundred companies in which he wants to invest, but he waits for the right opportunity and price. He advises the same to everyone; make a list of companies you like and wait for the right price.
A good reputation is essential for companies
According to Warren Buffett, ‘reputation is the most essential asset in the investing world.’ A company needs to protect its reputation at all costs. If a business faces losses, that can be recovered, but the loss of reputation is non-acceptable.
Avoid paying high fees for investment advice
Warren Buffett supports paying investment fees that deliver a good value. But on the other hand, he opposes the excessive fees charged by stock market traders for investment advice to ordinary people.
It is best to do a good amount of research before stepping into the market to invest. Through your research get a good idea of the companies you want to invest in. If you still feel confused and unclear about what to do, only then go to traders for suggestions. But be clear about their charges on a per-stock basis. If they are charging 1% for fees, that will make a big difference in the amount of money you will eventually receive.
Go for undervalued stocks
Buffett suggests investors must think of buying stocks as if they are purchasing the entire business. Being a big-time value investor, Warren Buffett purchases stocks trading at a discount compared to their intrinsic values. The intrinsic value is calculated by analyzing the fundamentals and calculating the current value of future cash flows. The company is compared with its peers to check whether it is undervalued or not. Some companies will become successful in the future and return more than the intrinsic value.
Know where not to invest
It is more important to avoid bad investments than to find good ones. Don’t invest your money in complex investments such as futures or options. Many public trading companies work beyond our understanding. Hence, you should first of all try to understand the business by doing thorough research. And if the business is still unclear to you, avoid investing in that business. Or, if you want to invest in these markets, approach them with a lot of caution. If you are not able to understand how a company is earning a profit, move on to your next one on your list.
Clear all your debts
Warren Buffett doesn’t believe in debt; the only exception is home loans. For a long time, Buffett has asked investors to steer clear of debt, especially if the debt is related to stocks. If you stay in debt, then you cannot save your money. You will always be paying the interest for your debts, and hence there is no benefit of making any further investments if you don’t have any savings.
Hang out with smart people with smart habits
Choose both your investment as well as your companion with whom you will spend time wisely. Pick people who have better habits than you. The only asset that can’t be returned is time, and hence it should be spent with selective people. Surround yourself with the best and brightest people, and they will bring out the best in you.
Stock buybacks are worth if it is in business value
The best use of a company’s capital is stock buybacks. According to Buffet, stocks purchased below business value is the best use of capital. Buybacks if it is done right are a valuable investment. Long-term investors understand the enduring value of buybacks.
Lots of liquid cash in your hand
You should have a lot of cash in hand to withstand any unprecedented losses. Many times people suffer because of a lack of money. You should always have cash in hand so that if you want to buy things, you can invest them there. You can use the cash whenever you face a financial emergency.
Investment in the stock market requires patience
You cannot get rich in a day by investing in the stock market. It demands patience. The stock market grows our existing capitals over a period of time. Do not expect immediate returns. Invest in companies that have already proven their worth in the market. This can help you get good returns.
Investing is not difficult or complicated. As per Warren Buffett, a simple approach rooted in common sense can make it a profitable venture. By following the investment tips suggested by Warren Buffett, such as focusing on long-term dividend stocks and having cash in hand, we can manage our investments better. Follow Warren Buffett’s investment advice to reduce the chances of making costly errors.