Three Lessons From One of the Greatest Investors of All Time

If there’s one person you should listen to and learn from, it’s Warren Buffett.

One of the most famous and successful investors of all time, Buffett has a track record that is the envy of every Wall Street investor.

Buffett not only makes money, he teaches – something he’s done for decades. And most of his advice is timeless.

No matter what your situation is, whether you’re sitting on a portfolio of $100,000 or just starting out in the investing game, you’ll be able to benefit.

The first lesson I want to go over today is…

1. You should always buy stock as an owner, not a speculator.

I can’t stress this enough… When you buy a stock, you are buying an ownership stake in a company. First-time investors make the same mistake every time. They buy a stock and then check its price every hour on the hour for the first few weeks.

If the stock doesn’t shoot up right away, new investors get bored and frustrated. Then they sell, never giving the stock a chance.

Don’t get caught up in day-to-day price movements. Instead of being addicted to every percentage move, Buffett says to think about buying a company that makes great products, that has strong competitive advantages, and that can provide you consistent returns over the long term.

As he said in his 1996 letter to his Berkshire Hathaway investors, “If you aren’t willing to buy a stock for 10 years, don’t even think about owning it for 10 minutes.”

The second lesson I want to share today is…

2. Be a contrarian.

Regular Health & Wealth Bulletin readers know that going against the grain can lead to big profits.

Buffett agrees. In 2004 he wrote, “Be fearful when others are greedy and greedy only when others are fearful.”

For the most part, Buffett believes that markets are efficient. But we all know there are certain times that rational thinking gets thrown out the window. As he said in 2017, “Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon.”

There’s no better example of this than when Buffett was buying stocks after the 2008 financial crisis. Every other investor was scared to death to buy. But Buffett stepped up and saw an opportunity. He even wrote an article in the New York Times titled “Buy American. I am.”

In it, he talked about the billions he spent on stocks that were trading for absurd bargain prices.

Now to be fair, the average investor doesn’t have the capital to endure the crash of 2008 and then start buying near the bottom. But it’s the conviction I hope you take from this lesson. If you see a situation where you know the herd is wrong, be bold. Don’t be afraid to move against the herd.

The last lesson I want to share today is…

3. Buy boring.

I love investing in companies that make products people actually need. Products that are unsexy. The more boring, the better. Legendary fund manager and author Peter Lynch makes the same argument in his book One Up on Wall Street.

Buffett is a big investor in boring. He invests in boring companies that he knows will be around for decades. Companies like Coca-Cola, Johnson & Johnson, and Visa.

He avoids companies that are considered revolutionary or innovative.

Here’s what he said in his 1996 letter to investors…

I should emphasize that, as citizens, Charlie [Munger] and I welcome change: fresh ideas, new products, innovative processes and the like cause our country’s standard of living to rise, and that’s clearly good.

As investors, however, our reaction to a fermenting industry is much like our attitude toward space exploration. We applaud the endeavor but prefer to skip the ride.

I occasionally recommend investing in innovation from time to time, but it’s important to keep those speculations as a small percent of a portfolio. The majority of an equity portfolio should be made up of boring companies – companies that slowly increase sales and that you know will still be selling the same product 10 or 20 years down the road.

If you want to make 2019 the year you become a better, more consistent investor, start applying these lessons today.

One man who attributes a lot of his success to lessons he learned from Warren Buffett is Whitney Tilson.

Next Wednesday, April 17, at 8 p.m. Eastern time, Whitney is unveiling the biggest prediction of his career. And he’ll reveal what he calls the “No. 1 retirement stock in America”.

This event is free, but a reservation is required.

Click here to claim your spot.

What We’re Reading…

Here’s to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
April 10, 2019