Pieces of investing advice can be found in many places. Yet some comes from dubious sources or inexperienced investors. The investing gems I really want to focus on are ones offered by legendary investors. Warren Buffett is someone that has many decades of successful investing behind him. Cathie Wood has also done very well in this regard through the running of Ark Invest.Â
Keeping spare funds for market dips
One of the investing gems that both agree on is that it’s important to be sensible about how one invests. This is especially true when there are concerns about a potential stock market slump.
Cathie Wood commented that market “corrections are good, they keep us all humble…the strongest bull markets I’ve been in are built on walls of worry”.
Moves lower recently, such as the September sell off in the FTSE 100, do keep us all humble. It tells me that I need to not over-expose myself to certain sectors or certain volatile stocks. This coincides with a valuable piece of advice from Warren Buffett. He was quoted as saying that “the three most important words in investing are margin of safety”.
If I invest everything, I’m likely going to cause myself unnecessary stress when corrections happen. This is because I haven’t included any margin of safety. Keeping some cash as a buffer not only helps me to avoid having to sell stocks for a loss to fund cash needs, but also allows me to take advantage of market falls.
For example, Cathie Wood noted that it’s natural to have corrections as part of a longer-term bull market. So if I keep some excess funds spare, I can use falls in the FTSE 100 to buy the dips as they happen. This allows me to build up my portfolio over time.
Further thoughts from Buffett and Wood
The second point I appreciate from both investors is that successful investing takes time. With the recent rise of retail trading in high volatility stocks, people are aiming to get rich quickly. In this regard, I need to think differently to the crowd.
As Warren Buffett said, “you can’t produce a baby in one month by getting nine women pregnant”. Good things (like solid market returns) take time. I shouldn’t feel like I need to be overly aggressive in my investing. If I have the right mindset I can reduce my risk by having a long-term view on the markets.
Adding to this, Cathie Wood has noted that “staying focused is a prerequisite for success”. This is important for me to remember, because when trying to build a portfolio over time I can lose focus easily. For example, I could skip investing each month in favour of spending the money elsewhere. Or not regularly research the best stocks to buy now and miss good buying opportunities.
Overall, investing advice from both Warren Buffett and Cathie Wood can help me to make better calls on my portfolio both now and in the future.