Warren Buffett and Elon Musk aren't exactly two peas in a pod. They differ significantly in age, demeanor, and interests. About the only thing Buffett and Musk seem to have in common is that they both rank among the wealthiest people in the world.
But Buffett and Musk agree in at least one area. Here's investing advice that both multibillionaires recommend following.
Image source: The Motley Fool.
1. Invest in what you know and believe in
Buffett has sometimes been criticized for not buying tech stocks more frequently. However, he has been steadfast in only investing in businesses that he understands. In his 2013 letter to Berkshire Hathaway shareholders, Buffett wrote that it's vital "that we recognize the perimeter of our 'circle of competence' and stay well inside of it."
Knowing the business well isn't enough, though. Even though he's known as a value investor, Buffett thinks believing in a company is more important than its valuation. As he stated in his 1989 letter to Berkshire shareholders, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Musk is on the same page. He's known more for his entrepreneurship than his investing. However, the Tesla CEO tweeted in May 2022, "Buy stock in several companies that make products & services that *you* believe in."
2. Hold for the long term, when possible
When many people think of long-term buy and hold investing, Buffett comes to mind, which isn't surprising. He's spoken a lot about having a long-term mindset. The Oracle of Omaha even wrote in his 1998 letter to Berkshire shareholders, "Our favorite holding period is forever."
Buffett hasn't always held onto the stocks that he's bought for Berkshire's portfolio for long periods. He has sometimes appeared to deviate from his own advice.
But it's important to understand the context of that famous quote about holding stocks forever. Buffett prefaced the statement with a condition: The holding period of forever is only for "outstanding businesses with outstanding management." When Buffett no longer believes that a business or its executive team is outstanding, he'll sell.
Musk shares this philosophy. In his aforementioned tweet earlier this year about buying the stocks of companies you believe in, he stated, "Only sell if you think their products & services are trending worse."
3. Don't worry about what the overall market does
In October 2008, the stock market was tanking as a result of one of the greatest financial crises in history. However, Buffett wasn't worried. He wrote in a New York Times opinion article, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."
This perspective is understandable for a man who was mentored by Benjamin Graham, the father of value investing. Graham included a now-famous allegory about an investor he called "Mr. Market" in his classic 1949 book, The Intelligent Investor. While Mr. Market (who represented the overall stock market) was usually rational, he sometimes behaved erratically. Mr. Market's wild mood swings presented great opportunities for other investors.
Musk seems to fully agree with Buffett on this principle. He tweeted seven months ago, "Don't panic when the market does." The S&P 500 was down 14% below its previous high when he made the statement.
Practicing what they preach
This investing advice has obviously worked well for Buffett. His beloved Berkshire Hathaway has trounced the S&P 500 since he took control of the company in 1965. That outperformance was largely due to Buffett investing in what he knew and believed in, holding for the long term when possible, and not worrying about what was happening in the overall market.
Musk has achieved tremendous success, as well, adhering to these three principles, particularly as applied to his investment in Tesla. He thinks it could work well for you, too. The eccentric multibillionaire closed his tweet about investing earlier this year with the following statement, "This will serve you well in the long-term."
