Investing Advice: A Simple Tip from Warren Buffett

Now that you have started your journey towards financial independence by saving up a little bit of money, its time to begin investing and making your money work for you. Now taking the leap into investing is no easy feat, if you are not careful, you can end up losing all of your money. Now although its good to be cautious, it is important to remind yourself that investing will not always make you money but that sometimes it might make you lose money. What you are better on is the fact that most of the time you will make money rather than lose through the years. Now, to help with diving into the vast world of investing, we will take a timeless tip from American investor and billionaire Warren Buffett so that we can remain profitable throughout our financial adventure.

Buying a Stock, Owning a Company 

When you buy a stock, you are not only buying a ticker symbol that increases or decreases daily. You are actually buying a company that is made up of employees, offices, materials, products and so many more tools that allow it to expand and becoming profitable over time. If you are planning on just buying a stock and holding it, hoping it makes you quick money, than you are a speculator and/or a day trader and not an investor. To be an investor, you would pick buy a stock that you can realistically see yourself holding 10 years down the line. 

As an investor you pick as stock that you believe will expand and become more profitable because you appreciate the benefit that it will bring the consumer. Buying a stock should not be like purchasing the most recent iPhone; you want to make sure that what you are putting your hard-earned money into is something that you can see that will still be around in 10 years, stronger than it is today. Warren Buffett believes that the best holding period of a stock is forever. This is because when you begin to buy and sell stocks, you are implicating yourself in high trading fees and at the end of the year, a higher tax return. It truly takes time to building accumulating wealth.

No Fast Money in Investing

Investing is not complicated…but it is not simple either. Buffett mentions many times that IQ has nothing to do with investing and making money through investing is as easy as sticking it out in the market in the long run and by not making investments because somebody told you that a specific stock will shoot up. You simply need to be sensible by not taking too many unnecessary risks, not making emotional decisions and not trying to time the market. That being said, Buffett is a big advocate for low-cost index funds that track the greater economy such as the S&P 500. He believes that these low-cost index funds are easy ways for beginner investors to enter the stock market without worrying about a single stock investment leaving them high and dry.

Understanding that Price is not Value

As a concluding note, when you are accessing a stock price, it is important to realize that stock prices are not always the best indicator of value for a specific company. As an example, if a stock price decreases by 20% during a financial crisis, this does not mean that the company is automatically not worth investing in anymore, it simply means that the buy-in price to own this company has become cheaper. As we are only investing for the long-term, when stock prices dip, value in the company remains the same and this becomes a great time to buy good quality companies for a fraction of the price. As Buffett has said in the past, the price is what you are actually paying to own a small share of a company; the value is what you are actually getting. 

Comments

What do you think? Is it worth taking the risk and buying individual stocks or is it better to follow Warren Buffett’s advice and just buy a broad market low-cost index fund? Let me know in the comment below!