Warren Buffett is widely celebrated as one of the best investors of all time. Therefore, it could make sense for other investors to follow some of his views and opinions in order to boost their own portfolio returns. With that in mind, here are three quotes from the ‘Sage of Omaha’ which could benefit your financial future.
Rule No.1: never lose money. Rule No.2: never forget rule No.1
The idea of never losing money on any investment may seem unlikely. However, the point that Buffett seems to be making with his ‘two-rule approach’ is that it can be worth holding onto underperforming stocks for the long run. In fact, his value investment style often means that he buys shares when they are underperforming. This can lead to paper losses in the short run, but high return potential in the long term.
Furthermore, by focusing on not losing money, investors may pay more attention to risk as well as reward potential. Certainly, the latter is more exciting and is a key reason why most investors start buying shares. However, by considering the risk of a stock losing money at the outset, it can lead to an improved portfolio risk/reward ratio which may mean superior overall performance.
Someone is sitting in the shade today because someone planted a tree a long time ago
This quote may prove to be most useful to new investors who may have high expectations for their portfolio returns. This could lead to them seeking to make a large number of trades in a short space of time, or becoming impatient with particular stocks which have not delivered on their potential since being purchased.
Clearly, it’s possible to generate high levels of capital growth, but it may take a long time to do so. Even an investor such as Buffett, who consistently beat the S&P 500 by a large margin, took decades to generate his billionaire status. Therefore, other investors may be better off focusing on their long-term returns, rather than considering the prospects of generating a large portfolio in a short space of time.
In the business world, the rear view mirror is always clearer than the windshield
Of course, every investment decision is easy and very obvious when looking back and using the benefit of hindsight. However, investors must make decisions based on the information, knowledge and ability that they have available to them at the time. This can be challenging, but it’s the only way to generate returns from shares, since considering what should have been done after the event is not going to make any impact on portfolio performance.
Clearly, it can be difficult to make decisions. However, by focusing on a specific strategy and analysing a company’s fundamentals as Buffett has done during his career, it may be possible to consistently beat the market and generate high returns over the long run.