Home » News

Interior Banner

Investing Insights from Warren Buffett


Warren Buffett's sensible approach to investing makes his advice highly sought after. Here are three of his gems:

Look forward, not backward, for investment ideas
"The investor of today does not profit from yesterday's growth."

Historically, markets advance over the long-term, but the leaders from one market rally may not carry over into the next. A simple comparison of this is the computer vs. the typewriter. Decades ago, everyone had a typewriter, which was necessary for many personal and business requirements. Since the advent of the computer, the typewriter industry has all but disappeared. 
 
Different sectors will outperform (or underperform) at different times in the economic cycle. A company that outperformed at one stage may not post strong returns going forward. This is one of the many reasons why diversification works and usually results in better overall returns.
 
Risk can provide opportunities
"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."

Some investors are apprehensive about investing in equities given the potential for volatility. However, without equities, a portfolio designed for long-term growth may not have adequate returns to support you through your retirement. History shows that markets typically recover from downturns, so it's better to hold investments through declines, rather than selling out of fear of further losses. 
 
The Brexit decision in June 2016, a referendum in the U.K. that will lead to Britain's eventual exit from the European Union, resulted in choppy markets, with equity indices falling over the month. These market fluctuations proved to be temporary as equities rallied in the following months. This period of instability offered opportunities to buy quality stocks at "sale" prices. Had you chosen to get out of the markets last June, you would not have participated in this growth, nor would you have had the chance to "buy low" in markets that eventually recovered. The trick to investing in potentially volatile markets is to ensure you are comfortable with the level of risk by understanding your own goals and needs. 
 
Change when it makes sense
"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

It's tough to admit being wrong. Similarly, many investors don't want to admit when one of their investments hasn't performed well. While a strong company will likely recover from a downturn, many less stable companies do not. If a company's fundamental outlook is poor, its stock price likely won't increase, and may post negative returns.
If it's not worth holding, it's better to move on than hold on. There are many companies out there with good quality management and solid growth prospects, which are better places to invest.
 
 

Back to < News

Email Page Printer Friendly