I’m an Investor: 5 Investing Tips I’ve Followed From Warren Buffett

This week started off with the Dow Jones Industrial Average falling over 1,000 points, which led to feelings of uncertainty about the state of the economy. New data released recently indicated that the unemployment rate had gone up to 4.3%, which was higher than expected and had many thinking that a recession was on the way.

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If the recent stock market fluctuations have left you stressed out, now would be a good time to refresh your memory on Warren Buffett’s timeless investing advice from investors who have followed it themselves .

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Following Advice From Warren Buffett for Successful Investing

“I first discovered Warren Buffett in 1980 when he was mentioned in ‘The Money Masters’ by John Train,” said David Kass, clinical professor of finance at the Robert H. Smith School of Business at the University of Maryland. “Since then, I have carefully followed him and have invested in Berkshire Hathaway and some of the stocks in Berkshire’s portfolio.

“Berkshire is my largest investment, and it has outperformed the S&P 500 over time,” Kass said. “Since 1965, Berkshire has achieved a compounded annual rate of return of about 20%, while the S&P 500 has achieved a total return (with dividends reinvested) of about 10% per annum.”

Kass noted that due to Berkshire’s outperformance and its large weight in his portfolio, he was able to see similar results.

Paul Gabrail, the founder and host of Everything Money , shared that he followed Buffett’s advice to invest in stocks in 2008 and 2009 when the world was seemingly falling apart. When asked about why he invested so heavily in stocks and real estate during this economic downturn, he said, “These were practices put into place because of what I took away from Warren Buffett’s lessons. When I read about him and his friends, it clicked and made sense to me.”

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Investing Tips From Buffett To Follow for Success

What are some investing tips that you can also follow from Buffett for successful investing?

Invest In Undervalued Companies

“As a professor of finance at the University of Maryland, I have taken students to the Berkshire annual meetings in Omaha annually over a 10-year period and have been invited on four occasions to bring students for private meetings with Buffett,” Kass said. “Similar to Buffett, I invest in stocks that I believe are undervalued and with excellent growth potential with respect to generating free cash flow.”

In his annual letter to shareholders in 1989, Buffett shared the following wisdom: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Buffett believes in investing in undervalued companies that can increase earnings and revenue in the future instead of just popular stocks. As an investor, you may want to try this approach so that you’re not just putting your money into what’s popular at the moment.

You Have To Remain Patient With Your Investments

“Buffett is an excellent example to follow because he’s a long-term investor with an extraordinary amount of patience,” Kass said. “With respect to temperament, to succeed one must be unemotional and not panic in sharp market declines, nor become euphoric as the stock market sets new highs.”

Buffett is known for saying that the stock market is a device for transferring money from the impatient to the patient. In his annual letter to shareholders in 1988, he noted that his favorite holding period was forever. Buffett believes in remaining patient and holding on to your stocks instead of reacting to every bit of market news.

You Want To Ensure You Know What You’re Investing In

Buffett is a proponent of investing in companies that you understand so you know where your money’s going. This means that you want to do enough research to feel confident in what you’re investing in. Kass shared how he was inspired by how much research Buffett does with his portfolio managers by reading relevant material on a company.

During a speech in 1993, Buffett said that risk comes from not knowing what you’re doing. He believes in understanding everything about the companies you invest in to minimize your risks. This means he tries to understand the potential and possible factors impacting earnings so that he can make informed decisions.

You Don’t Have To Be a Genius To Make Money Investing

“Buffett has stated to succeed in investing one should have the requisite intelligence, be willing to work hard and have the right temperament,” Kass said. “He has indicated that it is not necessary to have an IQ over 125. “

Buffett has said that rationality and emotional stability are more important than IQ when it comes to investing success. Buffett doesn’t feel that you need a high IQ to be successful in investing as long as you remain rational.

You Have To Be Greedy When Others Are Fearful

“Lots of people like to say they follow Buffett, but it’s hard for many because one must do it when markets are down,” Gabrail said.

Buffett is known for stating that investors should be fearful when others are greedy and greedy only when others are fearful. This advice is based on the price of a stock, since when investors get greedy, the price can go up too much and you may end up overpaying. Under this same logic, you can invest in a quality company when the stock price is down since other investors were fearful and sold off their shares. To be successful in investing, you’ll have to go against the crowd sometimes.

This article originally appeared on GOBankingRates.com : I’m an Investor: 5 Investing Tips I’ve Followed From Warren Buffett