In his decades-long career, Berkshire Hathaway boss Warren Buffett has seen almost everything. And so the stock market expert observed again and again what mistakes the majority of investors tend to make.
• Buffett warns of common mistake
• Expectation of when to buy and sell
• Passive rather than active investing recommended
Warren Buffett scores with his investment strategy
Warren Buffett is still considered an investing legend. The “Oracle of Omaha” owes this reputation to his instinct for successful companies, which have already brought him – and his investment company Berkshire Hathaway – massive profits over the many years of his career. Many market participants value the star investor for his simple yet effective investment strategy. Buffett usually picks up stocks when they have a favorable valuation and then holds the stocks over a longer period of time.
Investors should protect themselves against this trap
But as simple as this strategy may sound, successful stock trading has some pitfalls. As the entrepreneur told in an interview with Andy Serwer from “Yahoo Finance” in 2017, he repeatedly observes the same mistakes among investors that prevent them from making a successful investment. “The big mistake is thinking that you know when to buy and sell stocks,” explained the stock market guru. The assumption is often that there is a time to buy and a time to sell for every share. However, Buffett countered this and explained that there is a time to join a company, but that you don’t necessarily have to leave it again. “And at some point, when you decide to stop saving at age 70 or 80, you might be able to sell them,” said the Berkshire boss.
Buffett sticks with companies “forever.”
Buffett is known for remaining loyal to a stock over a long period of time. The stock market expert once wrote in a letter to Berkshire Hathaway shareholders: “Our preferred holding period is forever. We are exactly the opposite of those who rush to sell and book profits when companies do well, but who stubbornly hold on Hold on to companies that disappoint.” According to the philanthropist and former fund manager Peter Lynch, this behavior is more reminiscent of tearing blooming flowers out of the ground and watering and caring for dried-out weeds instead. In another letter to shareholders, he also wrote, “If you’re not willing to own a stock for ten years, you shouldn’t even think about owning it for ten minutes.” The market expert takes long-term investments very seriously.
Determining the best time is “a mistake for 99 percent of the population”
However, finding the right time is a challenge for the majority of investors. “Basically, any attempt to choose the right time to buy or sell is, in my opinion, a mistake for 99 percent of the population,” Buffett told Serwer. “And I think that even trying to pick individual securities is a mistake for people.” According to Buffett, many private investors tend to allow market fluctuations to force them to buy or sell too much. In the long term, these decisions almost always turn out to be bad.
S&P 500 ETF solves timing problem
The entrepreneur vehemently advises against active investing, for example by adjusting the weighting in your own portfolio and getting rid of some positions but investing in others. Instead, he recommends that most market participants buy a cheap ETF that tracks the S&P 500. “You don’t need to do anything other than that,” he said, highlighting the fund’s great advantage. “To a certain extent, the smarter you try to be, the worse you do when it comes to investing.” There are only a handful of institutional investors who manage to beat the broad US market. “But the average retail investor won’t be able to find them. And they won’t need them. That’s the beauty of it.”
Editorial team finanzen.net
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