Actionable Investment Insights from Warren Buffett's Teachings

May 2015

Billionaire, philanthropist and arguably one of the greatest investors of all time, Warren Buffett needs little introduction. He is known for delivering practical investment advice nearly everyone can use. Part of his genius lies in his ability to simplify complex ideas into bite-sized quotes that provide extraordinary insights such as the following.

  1. "Risk comes from not knowing what you are doing."
    Warren Buffett is famous for not investing in companies whose product or service he doesn't know well. He believes that understanding a business really well increases the odds in his favor, minimizes his chances of losing and helps him identify when trouble is likely to occur.

    Take a page out of Buffett's book and consider investing only in companies whose product or service you understand.
  2. "I think the worst mistake you can make in stocks is to buy or sell based on the headlines."
    Optimism and pessimism are both contagious. So are greed and fear. They are often fueled by financial news programs that are more about speculation than investing.

    Tune out the noise to avoid getting swept up in emotional investing.
  3. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
    A company's stock price moves along with the whims and emotions of traders and speculators, and is never a good indication of value. Warren Buffett puts more emphasis on a great company with great products and management than a mediocre one that can be purchased at a perceived discount.

    Remember that the price you pay for a stock isn't the same as the value you get. Focus on companies that meet your investment criteria and remain disciplined.
  4. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
    Warren Buffett can be known to go against the grain. He understands that the market can be driven by hope, greed and fear rather than logic and value. When most investors are panicky or fearful, he takes the opportunity to buy great companies (based on his criteria) at discounted prices.

    Be careful not to follow the crowd.
  5. "Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market."
    Recessions, bear markets and volatility are a normal part of investing. History tells us that markets eventually recover. The worst thing an investor can do is to overreact and go away from his or her game plan. Losses are an inevitable aspect of the markets. It's also these times when the market presents opportunities.

    Stick to your game plan and don't fear price fluctuations.

While you may gather some insight from the Buffett tips, the best advice you should take from Warren Buffett and his investing partner Charlie Munger is that learning is best done as a lifetime endeavor. They say, "If you keep learning all the time, you have a wonderful advantage."

Talk to a Commerce Trust advisor today at 855-295-7821.

  • This article is a special report designed to provide general information only and is not to be construed as tax advice. Please consult with your tax professional regarding your situation.
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