Warren Buffett is the world’s most successful investor. He’s beaten the market consistently for years, so it’s no wonder that people are clamoring for his advice. You can learn a lot by reading his shareholder letters or checking out some of his favorite investing books, and throughout all of them there are some concepts that you’ll see repeated over and over.
Here are 10 of Buffett’s most repeated (and best) investing tips for the average investor:
1. Understand your circle of competence
This can be summed up pretty simply: invest in what you know. After all, you have to have a good understanding of a company in order to really be able to properly assess its value and potential. Learn how to develop your circle of competence here.
2. Invest for the long term
Buffett is often quoted saying that “our favorite holding period is forever” and while that’s an oversimplification, the truth of the matter is that the market should be a long-term investment. Don’t just look at last year’s performance for a company–review the last five or ten years. Don’t expect to hold it for only a year–hold it for five. Investments should always be made with the bigger picture in mind.
3. It doesn’t have to be complicated
Investing in the stock market doesn’t have to be complicated. In fact, despite the fact that Buffett himself chooses and evaluates stocks and businesses, he actually recommends that casual investors make it easier on themselves and invest in index funds as they offer a decent return and less hassle.
4. Understand the difference between price and value
Price and value are often confused, but it’s important to know the difference. Buffett said it best (although he was quoting Ben Graham) when he explained that, “Price is what you pay. Value is what you get.” Always be sure that you’re getting a good value for the price when you purchase stocks.
5. Don’t compromise on quality businesses
Sometimes a deal really is too good to be true. Buffett frequently says that “It’s better to buy a wonderful company at a fair price than a fair company at a wonderful price.” What this means is that you’re better off to pay a bit more for a company that you know will succeed rather than wasting money on a mediocre company which is discounted.
6. Don’t underestimate compounding
Buffett is a huge fan of compound interest, and with the ridiculous success he has had over the years, it’s no surprise. Staying in for the long term and paying attention to compounding is the way to true financial success.
7. Don’t follow the crowd
Don’t be afraid to step away from the crowd and try something new. After all, you’ll never get uncommon success if you follow what everyone else does. Of course, Buffet frequently cautions against being contrary simply to be contrary; it’s a fine line to walk.
8. Don’t worry about the petty market fluctuations
The market will sometimes go up. And sometimes it will go down. The important thing is the overall trend, which is why Buffett is always in it for the long haul. That isn’t to say that you’ll never need to sell a company that isn’t doing so well, but rather that you shouldn’t worry as much about day-to-day numbers. “Remember that the stock market is a manic depressive,” Buffett once wrote.
9. Put your cash to work
Buffett’s two most important pieces of advice when it comes to cash come down to always spending cash. Credit is a terrible decision, especially when buying stocks, and having cash just sitting around isn’t a good idea either. While it’s important to have some wiggle room, cash in the bank isn’t going to work as hard as cash that has been invested intelligently.
10. Sometimes the best move is to not move
There is always going to be constant pressure to do things when you’re in the investing game, but investors who are constantly making adjustments and changes will, over time, see more of a loss than someone who simply sat still on a good company. The many times, the best thing is to choose a company that you rightly believe will produce positive returns, and then leave it alone.