Nitesh, 25, works as a mechanical engineer in Delhi. He prefers to keep cash in a savings account. He recently bought a life insurance policy and started a recurring deposit. At a college reunion, he met Vishal, an old friend. Vishal suggested that he begin investing in the stock market to earn good returns. But Nitesh was sceptical because he did not have any knowledge on the subject. So, Vishal advised his engineer friend to read about Warren Buffett and his tips on investing.
Warren Buffett is known as the greatest investor in history. He regularly shares his experiences with investors thus helping new investors like Nitesh. Here are five investment tips from Buffett.
1. Cash is the worst investment
People always hold an enormous amount of cash in their bank accounts. Perhaps they wish to be ready for emergencies. They might also worry about risking their earnings through investment. But cash lying idle in your savings or current account loses value due to inflation. The Rs 100 you own today will have barely any value five years from now. “The worst investment you can make over time is cash,” says Buffett.
2. Invest only in a business you understand
Before investing in a company, make sure you understand the company’s business. You must know how the company functions as well as its brand value. Study the company’s revenue model, future plans, and past performance. If you cannot understand the business, look at some other company. Buffett gives an example. Would you invest your family’s net worth in a business that you do not know enough about? You would surely choose a different alternative.
3. Do not follow the world
Do not invest in a stock just because others are investing in it. Try not to follow others’ advice blindly. Make decisions as per your knowledge and thinking. “To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible,” says Buffett.
4. History does not dictate the future
Do not rely only on the past performance of a business to make a decision. Remember, companies manipulate figures to suggest good performance. A company may give away high dividends, despite losses. It may do so to maintain its image and standing in the market. Even a successful company can go bankrupt due to poor decisions. Poor growth plans and an inability to compete can also lead to the downfall of a business.
5. YOU are the best investment
Buffett recommends investing in personal growth and development. You get the best returns when you invest in yourself. Continuous learning is the key. Look for opportunities to improve your skills and knowledge. Imbibe positive habits in your daily routine. Spend time with yourself and with people who are better than you. “Invest in as much of yourself as you can. You are your biggest asset so far,” says Buffett.
Bottom-line
Rome was not built in a day. Neither was Warren Buffett’s empire. Be persistent and keep looking for opportunities. To conclude, here is another nugget from Buffett: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”