12 nuggets of wisdom from the Oracle of Omaha: one for each month of his 93rd trip around the sun.
Warren Buffett turns 93 today. He was born on Aug. 30, 1930, in Omaha, Nebraska, where he still resides.
Through the years, Buffett has builtBerkshire Hathaway (BRK.A -0.54%) (BRK.B -0.72%) into one of the biggest companies in the world, and he has become one of the wealthiest people in the world.
He continues to be a great source of wisdom for investors. In celebration of the Oracle of Omaha's birthday, here's his best investing advice from a remarkable lifetime of experience.
Image source: The Motley Fool.
1. Think long-term
Buffett has preached the merits of thinking long-term throughout his career. He once said, "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." He also has said, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."
This doesn't mean that Buffett always owns stocks for years; he doesn't. But he always has a long-term mindset.
2. Understand the underlying business before buying a stock
The legendary investor has also consistently emphasized the importance of understanding the underlying business before buying its stock. In his most recent letter to Berkshire Hathaway shareholders, speaking of himself and longtime business partner Charlie Munger, Buffett wrote, "Charlie and I are not stock-pickers; we are business-pickers."
3. Look for durable competitive advantages
One specific thing that Buffett encourages when evaluating a business is to look for competitive advantages that are durable. Here's how he once put it:
The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.
4. Invest in wonderful companies at a fair price
In his early days, Buffett was a dyed-in-the-wool value investor. He still focuses heavily on valuation. However, he believes that the combination of the quality of the business plus valuation is even more important. As he once said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
5. Know what you don't know
Few investors do the research on a company that Buffett does before he puts any money on the line. But even the Oracle of Omaha recognizes that he can't know everything, and he has stressed the importance this: "What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know."
6. When to be fearful and when to be greedy
One of Buffett's most famous quotes is, "Be fearful when others are greedy and greedy only when others are fearful." He doesn't believe in blindly following the crowd with any investment. The best opportunities can come when most other investors are too afraid to jump in.
7. Take advantage of opportunities
Buffett is cautious by nature, which has worked to his advantage. But he definitely supports taking advantage of opportunities, or as he puts it: "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."
8. It's OK to sit on the sidelines
Although Buffett prefers to be heavily invested in stocks, he thinks it's OK to sit on the sidelines when there aren't attractive opportunities. In particular, he won't buy many stocks when valuations are too high. He used a great analogy in the past to describe the appropriate mindset: "An investor should act as though he had a lifetime decision card with just 20 punches on it."
9. Don't fret when the market falls
During his 93 years, Buffett has lived through plenty of stock market declines. He has provided excellent advice on how to view market pullbacks:
So smile when you read a headline that says: "Investors lose as market falls." Edit it in your mind to: "Disinvestors lose as market falls -- but investors gain." Though writers often forget this truism, there is a buyer for every seller, and what hurts one necessarily helps the other.
10. Recognize when you've made a mistake
Buffett emphasizes buying and holding stocks over the long term. However, he doesn't have any problems selling stocks, especially when he's made a mistake in evaluating its business prospects. In his words, "The most important thing to do if you find yourself in a hole is to stop digging."
11. Invest in yourself
Not all of Buffett's investing advice has been about investing. One of his most important nuggets of wisdom is: "The most important investment you can make is in yourself."
12. Buffett's best financial advice of all
I couldn't end this list without including what's arguably Buffett's best financial advice of all: "Rule No. 1: Never lose money. Rule No. 2: Don't forget rule No. 1." Consistently following this advice, though, is certainly easier said than done.
Just a sampling
These 12 pieces of advice from Buffett are really just scratching the surface. The legendary investor has shared a lot more great wisdom through the decades. I know that many of us look forward to hearing more from him for years to come. Happy birthday, Mr. Buffett.
Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
