Warren Buffett: the 3 vital investing rules the world’s best investor follows

Warren Buffett.

The name alone causes most investors to drop whatever else they’re doing and pay attention.

And for good reason.

Warren Buffett notched up his first billion dollars back in the 1980s. And as the chairman and CEO of Berkshire Hathaway, he’s continued to build on that wealth since.

For many years now, he’s been counted not just as one of the world’s richest people but also as one of the all-time greatest investors.

And the Oracle of Omaha isn’t one to keep his investment strategies to himself. He readily shares his wisdom on how he’s managed to achieve outsized returns in interviews and videos.

Below we look at three vital investing rules Warren Buffett swears by.

Patience is a virtue Warren Buffett advises

We’d all like to think we can somehow time the stock market. That we may know something most investors don’t.

But the reality is timing the market correctly is incredibly difficult, even for seasoned investors. And we don’t know of any investors who’ve managed to do so consistently over the long term.

Which is why Warren Buffett says, “The stock market is designed to transfer money from the active to the patient.”

That means not jumping into a company’s stock simply because it’s getting a lot of media attention. If the price is too high, it’s best to be patient and wait for it to come down to a fair value.

Similarly, when share markets come under pressure, as we saw in much of 2022 amid soaring inflation, your portfolio may lose value. Here again, patience is advised as, historically, stock markets have always recouped past losses and marched higher over time.

Stay with what you know

A second golden investing rule that’s helped Warren Buffett amass his billions is investing only in companies and sectors he’s familiar with.

This has seen Buffett avoid the likes of cryptocurrencies and tech stocks. While that may have cost him some profits in the low interest rate boom times, it’s also saved him some hefty losses over the past year.

That’s not to say everyone should avoid tech stocks. Far from it. But according to the Oracle of Omaha, you should only invest in a sector or company if you understand how it works.

We all have our different areas of expertise. Sticking to investing within those areas can give you an edge over other investors who are outside their comfort zones.

Warren Buffett: look for real value

The best investments, Warren Buffet advises, provide real-world value, not just market value.

In other words, don’t get sucked into the trap of buying shares that are the market darlings of the hour. You may find you’ve bought close to the medium-term highs and then find yourself selling at a loss.

That’s why Buffett looks for companies that offer real-world value, with great brands and the ability to control prices.

A bit of research on the past few years of financial results should give you a good grasp on the health of a company’s balance sheet and whether they’re likely to deliver consistent profits in the years ahead.

The post Warren Buffett: the 3 vital investing rules the world’s best investor follows appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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