Investing may be simple in principle, but it certainly isn’t easy in practice. Markets and economies are fraught with uncertainty and constantly evolving. If this wasn’t enough, the media never fails to remind us how great some other investment is performing. Warren Buffett is considered by many to be one of the most successful investors of all time. Occasionally Buffet shares sage advice that every investor can benefit from.
Buffett’s Advice
I want to share two things that Warren Buffett said in the latest Berkshire Hathaway shareholder meeting. You will see that his counsel is neither novel nor earthshattering, but still, it is valuable because it helps us think about what really matters in investing and the approach we may want to take when making investment decisions.
“What gives you opportunities is other people doing dumb things… and there’s been a great increase in the number of people doing dumb things.”
What kind of dumb things might investors do? In my experience, it almost always has to do with making hasty, emotion-driven decisions. These decisions are often made in response to sensational news headlines, bold predictions, and/or recent market performance.
“The world is overwhelmingly short-term focused.”
Buffett doesn’t pay attention to short-term events, and he seeks to take advantage of those that do. These two comments provide us with insight into how Buffett has become such a successful investor. There is no talk of algorithms, trends, or fancy methodology. His statements are refreshingly simple.
Profiting From Mistakes
Investors often focus on how well a security will perform and work out in our favor. We seldom ask ourselves how a decision might be “dumb” or how much it could cost us if it backfires, but that can be a very helpful exercise. Everyone makes mistakes. As investors, we can improve our game by minimizing our own mistakes while taking advantage of others’ mistakes.
Buffett’s advice really boils down to becoming a long-term focused investor. That means we do not allow the daily noise to distract us from our long-term view and investment strategy. Simple in principle, difficult in practice – yet potentially very rewarding.
-Dan
2023 Berkshire Hathaway Shareholder Meeting
© The Behavioral Finance Network
