Two investment secrets from the master: Warren Buffett
Fsp Invest Team, 18 Apr. 2013
They say knowledge is power. And learning from industry experts with a wealth of information and experience is one way to learn. One such person is Warren Buffett, arguably the greatest investor of all time. Here are two of his investment tips you can use in your own investment portfolio.
“Warren Buffett is one of the great role models for investors. His approach is one based solely on commonsense,” says Investment Expert Joss Smith, in The South African Investor.
As the world’s most famous private investor Warren Buffett is definitely worth listening to.
Warren Buffett’s secret investment tips revealed
Buffett secret #1: Add to your winners
Buffett’s investment company Berkshire bought about one third of GEICO, a leading property-casualty insurer, for a total of $47 million between 1976 and 1980. Over the next 16 years, Berkshire grew its stake to almost 50%.
As a result, in 1996, Berkshire acquired the remaining 50% for $2.3 billion, that’s 50 times the original cost. Berkshire made a fortune on GEICO.
The lesson: If a company you’re heavily invested in keeps proving itself, it’s a good idea to keep topping up your investment.
Although “there’s always a huge temptation to take profit and reinvest somewhere else in the hope of repeating the experience, it isn’t always the right thing to do. The best pieces of evidence that an investment is going to be successful in the future is that it’s already proving to be so today,” says ,” says Smith.
Buffett secret #2: Keep some liquidity both for safety and opportunity
A successful investor isn’t one who’s having sleepless nights.
Warren Buffet once said, “we’ll always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. We pay a steep price to maintain our premier financial strength… But we sleep well”.
The lesson: That last part is such a simple truth you risk overlooking it. Investments shouldn’t stretch your resources or cause a lot of anxiety.
Indeed, “there’s a very strong argument to make a distinction between savings and investments. Savings are your sleep-well prescription: Sold, safe and determinedly unexciting,” says Smith.
The other point Buffett is making here is that a good dollop of cash liquidity within the investment portfolio, as with Berkshire Hathaway in the 2008 crisis, allows for great value opportunities to be exploited whenever they occur.
There you have it. Two important investment secrets you can use in your own investment portfolio from the master himself.
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