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Warren Buffet’s Top Tips on Investing for Beginners

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On the recent occasion of his 87th birthday, Warren Buffet, arguably the most successful investor of all time was again asked a question he is probably very bored of by now – what his best investment advice was. His response was that, ultimately, the key to investing successfully is experience. That may not initially be of comfort to those just starting out on their journey as investors. However, over the years Buffet has also had plenty of tips on investing for beginners. Let’s take a look at some of the best:

Broad Diversification Can Be Overrated is the first piece of Buffet advice and one that seems to go against the grain of the commonly repeated mantra that diversification is key. However, Buffet’s statement needs to be taken in context. He is not suggesting that investors put all of their money into one or two stocks.

What he is saying is that some investors diversify their portfolio very broadly to stick to the general principle that they should not be overexposed to one investment. While broad diversity does reduce risk it can also make it hard to keep track of all of the investments in a portfolio, especially for beginners. This can mean that adjustments that should be made and stocks that it might be best to now sell, slip off the radar.

Buffet advises that investors should choose stocks for the long term and keep faith in their investments. Not having too many to be able to easily keep track of is a good approach for beginners and they shouldn’t panic if the share price of one sinks at a particular moment as long as the reasons it was chosen in the first place are still valid.

He also says that investors shouldn’t be afraid to invest more heavily in a good opportunity, a sentiment nicely expressed by the Buffet quote when it’s raining gold, put out the bucket not the thimble.”

Trust yourself is another key piece of Buffet advice. Not paying too much attention to unqualified friends and family who will often have an opinion on investment is important for beginners to investing who will naturally feel some insecurity in their decisions. Buffet believes that beginners should invest first in accumulating knowledge on investment principles then take their own decisions based on that knowledge and stick to them.

Focus on the right news is also important for beginners who tend to read too much into headlines. Buffet believes that most investors take decisions based on 1% of the financial news they read and it’s usually based on sensationalist headlines.

As a result, they sell investment when bad news appears, such as revenues slumping by 10%. Buffet thinks that too many investors overreact to shocks in the news and don’t consider the bigger picture. For example, If the company in question has been in business for 100 years it will likely come through a blip. Look at why revenues have dropped – maybe bit is part of a natural cycle in products or services or due to a one-off event such as a scandal or technical problem in a flagship product. If the underlying business is still good the share price will bounce back. It could, rather, be a time to buy!

Finally, consider buying any stock in the same way you would consider investing in a local business you know well. It is after all, buying part of the business. If the owner of your local corner shop asked if you would like to invest in their business, you would naturally start thinking about the location, number of customers, competition from new supermarkets in the area opening and the fact it could do with some renovation and this will be an expense.

Too many beginner investors think that investing in the stock market is complicated. Well, it is and it isn’t. A prospective investor has to think about the business they are considering buying shares in, in the same way as that local corner shop. The same factors, on a bigger scale, will be key to its future success. 




Risk Warning:

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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