Warren Buffett’s Investment Advice: 7 Top Pieces of Wisdom

Photo by Kent Sievers / Shutterstock.com

Originally published by James Royal on Bankrate.com.

Warren Buffett is known as one of the best investors of all time, and he’s amassed a multibillion-dollar fortune investing through his company Berkshire Hathaway. But he’s not only a great investor, he’s also a great wit, and Buffett enjoys sharing his folksy wisdom with fellow investors.

His advice runs the gamut of topics, not only about investing but about life in general. But today let’s stick to Buffett’s advice that could help make you rich.

Here’s the surprising thing — Buffett’s wisdom seems so commonsense and practical, and yet it can lead to great wealth.

7 pieces of wisdom from Warren Buffett

Below are seven of Buffett’s more widely known aphorisms and what they mean for investors.

1. ‘Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.’

Buffett’s point sounds simple here, but it’s disarmingly complex. Of course, as an investor you’re trying to profit in the market, but one of the best ways to do that is by avoiding loss.

When you eliminate decisions that expose your portfolio to loss, what’s left is more likely to be a gain. When you have more money in your portfolio, you can compound your gains even faster.

This approach has implications for how you invest.

Buffett’s quote suggests that instead of looking for the highest upside, you should be looking to avoid loss first and only then look at gains. That’s a different mindset from investors who view the stock market as a slot machine.

Here are two hot investments that Buffett says he’s avoiding.

2. ‘Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.’

Here Buffett suggests that when you see an opportunity you need to act quickly and decisively.

When the odds are stacked in your favor — such as when stock prices are down significantly — you need to invest heavily, because good prices might not come along again soon.

Buffett often takes this approach when markets are down significantly. He amasses a ton of cash during the good times, and then invests aggressively when stocks plunge. Having a lot of safe cash on hand allows him to use this strategy.

3. ‘We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.’

While some investors think investing is a lot about the numbers, Buffett suggests that investing has much to do with the behavior of investors themselves.

When investors are greedy and push the prices of stocks to the sky, Buffett becomes fearful, because a market plunge may soon follow.

In contrast, when investors run away from the market or a specific stock, Buffett becomes more interested because prices are cheaper. When stocks are cheaper, they don’t have the same risk as when they’re expensive. And this is how Buffett thinks about avoiding losses.

In early 2020, the market plunged as worries about the coronavirus rattled investors. However, some investors dove into the market amid the fear, and the market rallied furiously off its lows.

4. ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’

While some value investors focus on buying only the cheapest companies, Buffett suggests a better course of action is to buy “wonderful” companies — those with better economics and competitive positions.

Part of the difficulty here is that whereas fair companies may go on sale relatively frequently, the great companies rarely look cheap.

But a company with a good competitive advantage will likely continue to make money over time, and it can bail you out if you purchase at a too-high price.

That may not be the case for a fair company, which may falter and never return to your purchase price or beyond.

Along these same lines, Buffett has been a long-time buyer of Bank of America, a bank with branches across the country and an enviable deposit franchise.

As of the third quarter of 2020, it occupies the second-largest position in Berkshire Hathaway’s portfolio, after Buffett acquired more than $1.7 billion more at the end of July.

5. ‘The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.’

Here again Buffett touches on the value of temperament for a successful investor rather than intelligence.

Rather than trying to go with or against the crowd, investors should analyze what’s going on in the market, regardless of who likes what stock. By focusing on the objective facts, investors can make decisions that are relatively free of emotion and make better choices.

6. ‘The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.’

This quote is one of Buffett’s most famous, and it offers the essence of picking your opportunity.

You needn’t invest until you find an opportunity that you find attractive, one that meets your standards of potential reward for the risk you’re taking.

Again, Buffett counsels investors to wait until they find an opportunity that is unlikely to lose them money. You don’t have to take any chance on a stock that you don’t find attractive.

7. ‘If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.’

Buffett has long advised most investors to use index funds to invest in the market, rather than trying to pick individual stocks.

By picking individual stocks you’re working against the pros who have extensive intelligence on companies. In contrast, if you buy an index fund based on the S&P 500 index, you’ll own the market, the target that everyone is aiming to beat.

By all means, if you enjoy investing, then do it, but most investors are going to be well served by using an index fund and especially by avoiding trading in and out of stocks.

Another advantage of using index funds — immediate diversification, which lessens your risk. (See Rule No. 1.)

Bottom line

While Warren Buffett may be one of most successful investors ever, his investment approach can be shared by many investors, even if they don’t want to spend a lot of time in the market. Focus on implementing Buffett’s principles and you too could become wealthy or increase your net worth substantially.

Learn more:

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

8 Amazon Picks Under $30 for Coffee Lovers

We’ve brewed up a list of amazing Amazon products that are sure to perk you up.

8 Things I Always Buy at Target

I grew up shopping at the original Target store and am a lifelong fan. Here are my favorite purchases.

Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

This Is the Best Age to Buy Long-Term Care Insurance

If you wait too long to apply for coverage, you could be denied. So, when’s the sweet spot to apply?

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Longer Trips to These Stores May Raise COVID-19 Risk

An airborne-disease expert recommends leaving this type of store within a half-hour.

Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

Prepare to Pay More for These 31 Drugs in 2021

More than 700 prescription medications have seen price hikes so far this year. Here’s a look at the worst.

11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.