Investor Warren Buffett bought his first stock at age 11 and purchased his first lot of real estate at 15. Today, the Oracle of Omaha has a net worth of $147 billion and a reputation for identifying promising investments.
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Buffett has generously shared his expertise over the years, offering his advice in interviews and letters to Berkshire Hathaway shareholders.
Here are his top four tips for everyday investors who want to choose the right investments.
Buffett isn’t the kind of go-go-go investor Hollywood likes to profile. He doesn’t buy low, sell high, and buy low again before lunch. Instead, he researches companies’ operations, news, and balance sheets and invests in those he believes will do well in the long term.
In his 2022 letter to shareholders, he wrote:
“We own publicly traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. Charlie [Munger] and I are not stock-pickers; we are business-pickers.”
As Buffett’s business partner for nearly 50 years, Munger was instrumental in helping Buffett identify good deals.
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During the 2008 economic recession, Buffett reminded his shareholders of the importance of value. Although the value of his investments had dropped along with the market, he didn’t worry. He even used his purchasing power to buy more of certain stocks.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down,” Buffett said.
Of course, Buffett knows that not every low-priced stock is a good value. He quotes his mentor, Ben Graham, who said, “Price is what you pay; value is what you get.”
Finding those valuable purchases requires research and a commitment to finding good companies, not just cheap stocks.
One of Buffett’s hard-and-fast rules is only investing in businesses he understands. He tracks a company over time to see how it’s doing and whether he believes it will continue to grow.
Buffett understands a great deal about many kinds of businesses, but he believes his approach works even for those without 60-plus years of investment experience. As long as you invest in businesses you understand, he says, you’re on the right track.
As he wrote to shareholders in his 1996 Berkshire Hathaway letter:
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