Warren Buffett – Important investing lessons I’ve learned

Warren Buffett is one of my investing role models. I attempt to shape my portfolio and investment decisions based on lessons learnt from watching him. Here are some of the investing fundamentals Warren Buffett has taught me by example.

Investing with a long-term view

The Foolish way is to invest for the long-term and I also apply this principle. Buffett says, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

“Our favourite holding period is forever.”

Investing is about generating wealth over a long period of time while minimising risk. Short-term profits are good, but wealth generation occurs over a sustained period of time.

Warren Buffet buys quality over quantity

Two of Buffett’s favourite companies are Coca-Cola and Apple. Both have incredibly strong brand recognition throughout the world. This has helped them grow exponentially, in turn generating huge profits for their investors.

Rather than buying lots of different stocks, Warren Buffett believes in buying high-quality businesses. This can mean firms that possess significant advantages as well as global footprint. He says, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.“

I would rather buy a quality business at a higher price, than a low-quality business no matter how attractive the share price may be.

Warren Buffett has largely kept out of the tech sector, as he has professed his lack of knowledge of that area. This is one of the best lessons I have learnt. Stick to what you know and do your own homework is what I learnt from this lesson. He says, “Risk comes from not knowing what you are doing.” And, “Never invest in a business you cannot understand.”

People make investing more difficult than it is

I believe Buffett’s investing strategies are about simple processes to make rational investment decisions. One of the consistent messages I find throughout his lessons is that you don’t have to be a genius to be a good investor. He says, “The business schools reward difficult complex behaviour more than simple behaviour, but simple behaviour is more effective.”

From this, I learnt that complex processes and equations or a thorough investing model is not needed. I believe good old fashioned hard work, research, due diligence, and keeping it simple work for me.

How I manage my portfolio using these lessons

There are lots of other quotes, stories, and anecdotes involving Buffett that teach investment basics and fundamentals. Above are some I use on a day-to-day basis.

I invest in stocks with a long-term view. I focus on quality companies rather than focusing on valuation alone. In order to succeed, I try to keep my investment process simple without complex theories. Instead, I believe in thorough research and due diligence. Finally, I try and stick to firms and sectors I know about as over-diversification can be damaging.

Warren Buffett isn’t a huge fan of excessive diversification and his biggest winners have only come from a handful of the stocks he’s owned. The best examples that spring to mind (apart from the aforementioned Apple and Coca-Cola) are Chevron, American Express, General Motors, Mastercard, and Johnson & Johnson.