Warren Buffett on investing. Why Warren Buffett’s investments beat the market – advice from the Oracle of Omaha.
Over the years, Warren Buffett has given advice on how to beat the market on various occasions. In a famous speech titled the ‘Superinvestors of Graham and Doddsville’, Warren Buffett describes how value-oriented managers who belong in the intellectual village of Benjamin Graham and David Dodd have been and will continue to beat the market.
Make a limited number of stock market decisions
One of Warren Buffett’s favorite advice to the aspiring investor is to think of investing as a series of decisions that each need to be contemplated very carefully and that cannot be reverse easily. That is, to assume that we can only make a limited number of investment decisions in our lifetimes. He finds it surprising that some people would perform extensive due diligence before buying a house but that would snap up shares on the stock market without much thought, simply after having heard some media pundit laud the stock on television.
Ignore Market Volatility
Behavioral finance teaches that it is very common for investors to be fearful when prices fall and thus want to sell, and greedy when prices rise and thus want to buy. This seems to be a natural human inclination that the successful investor must learn to keep in check.
Buffett further observes that this emotional reaction to the market can be countervailed by conducting extensive and thorough research and due diligence. The more ‘homework’ we have done on a company, the more confidence we have on the strength on our own view of the company, and the less we would be swayed by the volatility of the market. The investor who buys with a long time horizon having done significant research will thus outperform the investor who buys with a short time horizon on a whim.