Investors cling to pretty much every word Warren Buffett utters, be it in interviews; his letters to shareholders of Berkshire Hathaway (NYSE:BRK-A), (NYSE:BRK-B); or his musings at Woodstock for Capitalists, also known as Berkshire's annual shareholder meeting.
What you'll never get from the Oracle of Omaha is advice on the latest hot stock. Buffett's investing lessons are about the importance of discipline, patience, and taking a long-term perspective. Here are four great investment lessons you can learn from him.
1. Only pick stocks if you do the homework
If you want to invest in individual stocks, commit to regular research. "If you like spending six to eight hours per week working on investments, do it," Buffett has said. "If you don't, then dollar-cost-average into index funds." Specifically, he is a huge fan of low-cost S&P 500 index funds for most investors. You get automatic diversification because you instantly invest in 500 large-cap U.S. corporations, and the fees are low because they're passively managed.
But if you're picking your own stocks, it's not enough just to invest based on the metrics. One of Buffett's biggest rules: Never invest in a business you don't understand. That's one reason he's long eschewed most tech stocks and confusing investments like bitcoin.
2. Patience matters more than smarts
If you want to get rich the Buffett way, don't expect it to happen quickly. Berkshire's chairman is a staunch buy-and-hold proponent. "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes," he has said. He even tells people not to invest in Berkshire Hathaway unless they're willing to hold their shares for five years or more.
But a lot of people aren't willing to invest with a focus on long-term results. That's why Buffett believes that successful investing is more a matter of patience than intelligence. He's often said that what gets people in trouble with investing is a lack of self-control. "The most important quality for an investor is temperament, not intellect," Buffett has said. "You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."
3. Invest when everyone else is afraid
If you approach investing with Buffett's mindset, you don't have to worry about another stock market crash. He explained in his 2009 letter to shareholders why the previous two years (the Great Recession) had been an ideal time for investors. "A climate of fear is their best friend," Buffett said. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance."
What Buffett isn't embracing, though, is attempting to time the market. He told CNBC in February as the coronavirus pandemic was starting to sweep the globe that "you can't predict the market by reading the daily newspaper." He's a proponent of dollar-cost averaging, which means you invest regularly regardless of whether you think stocks are heading up or down.
4. Cheaper isn't always better
Buffett cautions against overpaying for stocks, but he also doesn't try to swoop in and buy just because a company looks like a bargain. His oft-quoted mantra: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Instead of searching for a company whose stock is cheap, Buffett looks for one with a competitive advantage, meaning it's uniquely suited to provide something its competitors can't -- what he calls a moat. That moat can take a number of forms, like a cost advantage, a beloved brand, or a technological edge. In Buffett's view, buying the pricier castle is well worth it when it buys you a bigger moat.