On the eve of the year, Buffett gave investors some important advice, following which will help make investments profitable and allow them to successfully bypass all the reefs and obstacles in the raging ocean of financial markets.
Warren Buffett, who heads investment giant Berkshire Hathaway, is the kind of person in the financial world whose advice is worth listening to. He’s managed to accumulate more than 70 years of successful investing experience and is one of the world’s top richest people, though he earned 99% of his current fortune after 50 years of age. His economic forecasts are almost always reliable and accurate, that’s why his compatriots call him the “Oracle of Oklahoma”.
Buffett himself lives in the house he bought in 1957 and prefers to forgo luxuries, though private jets are his weakness.
This year Warren Buffett gave some advice to private investors:
- Say an emphatic “no” to Bitcoin. Buffett is also distrustful of high-tech investments. However, it’s not just a matter of distrusting technology: while Warren Buffett does not question the value of Bitcoin as an effective means of payment, he simply does not see any intrinsic value in it that is worth investing in. Nothing supports the price of Bitcoin except the market itself, which is based on expectations.
“Stay away from it…It’s a way to transfer money, a very efficient way to transfer money, you can do it anonymously. A check is also a way to transfer money. Do checks have tremendous value just because you can use them to transfer money? What about bank transfers? You can transfer money with bank transfers. I hope bitcoin becomes a more efficient way to do that, but you can replace it with a dozen other ways. I find the very idea that it has some intrinsic value amusing.”
- Master the language of numbers and financials. Studying financial statements and mastering the language of numbers and financials will open up access to new knowledge and give you a better understanding of why a particular company’s stock is showing the appropriate price movements and what you can expect from it in the long run.
“Take an accounting course. Accounting is the language of business. …As the years go by, it will become easier and easier for you to read and understand financial statements because it is a separate language. Understanding a foreign language comes with experience when you learn it first, and then it pays off.”
- Save money, not chase profit. As the financier believes, the ability to count and save money should become a habit brought to automaticity, which forms the basis of financial success in the future. As for opportunities of getting rich quick, it’s a hard, full of illusions way, which few people will be able to pass successfully. In this case, Buffett calls for frugality and rational conservatism, because conservative investors stand a better chance of long-term success.
“I believe that when people don’t learn the habit of saving, it’s a big mistake. Because saving is a habit. As for being able to get rich quick, it’s pretty easy to make money slowly and little by little, but it’s not easy to get rich quick at all.”
- When stock prices fall, buy. Throughout 2014, many markets fell, and Buffett’s own financial empire could not help but be affected – he lost about $2 billion over the year. Nevertheless, Buffett himself did not lose optimism and assured that this was not a reason to give up investing. Moreover, in his opinion, falling markets offered ample opportunities for buying securities – at that very moment it was possible to buy shares at a fraction of their value a year or two later.
“I like to buy when the market is down, and the more the market is down, the more I like to buy. …I don’t know how to predict what’s going to happen to the market. But I do know how to pick smart investments that I can then own over a long period of time.”
- Don’t play the expert. As Warren Buffett said in an interview with CNBC, investing money in assets about which an investor has no clear understanding is tantamount to gambling, adventurous in nature. So don’t invest in assets which you don’t understand and don’t understand the fundamentals, principles, or mechanisms of their existence. And consequently you cannot not only predict, but even explain the reasons of growth or decline in value of those financial assets, of which you have a very vague idea.
“You don’t have to be an expert to get a satisfactory return on investment. But if you are not an expert, you have to recognize that and follow a certain course that will work. Try to think simple and don’t force things. If you are promised quick returns, answer “no” quickly.