Warren Buffett is known as one of the best investors of all time, having amassed more than a hundred billion dollars through his company Berkshire Hathaway. But he’s not only a great investor, he’s also a great mind, and Buffett enjoys sharing his folk wisdom with fellow investors.
His advice covers a wide range of topics, not only about investing, but also about life in general. But today, let’s stick with Buffett’s advice that can make you rich. What’s surprising is that Buffett’s wisdom seems so common sense and practical, and yet it can lead to great wealth.
Top 10 investing tips from Warren Buffett
Below are ten of Buffett’s better-known aphorisms and what they mean for investors.
1. “Rule No. 1 is never lose money. Rule No. 2 never forgot rule No. 1.”
Buffett’s point here sounds simple, but it is disarmingly complex. Of course, as an investor you try to make a profit in the market, but one of the best ways to do that is by avoiding losses. When you eliminate decisions that expose your portfolio to loss, you are more likely to retain profit. If you have more money in your portfolio, you can increase your profits even faster.
This approach has consequences for the way you invest. Buffett’s quote suggests that instead of looking for the highest benefit, you should first avoid loss and only then look for profit. That’s a different mentality than investors who view the stock market as a slot machine.
2. “It is much better to buy a wonderful company at a fair price than an honest company at a wonderful price.”
While some value investors focus on buying only the cheapest companies, Buffett suggests that a better course of action is to buy “great” companies – those with better economics and competitive positions. Part of the difficulty here is that honest companies go on sale relatively often, but the big companies rarely look cheap.
But a company with a good competitive advantage will likely continue to make money over time, and it could save you if you buy at too high a price. That may not be the case for an honest company, which may falter and never come back to your purchase price or above.
Some of the high-quality companies that Buffett has invested heavily in over the years include:
- Apple (AAPL)
- American Express (AXP)
- Coca Cola (KO)
- Moody’s Corp. (MCO)
- See’s candy stores
Apple was the largest position in Berkshire Hathaway’s stock portfolio as of 2024.
3. “Opportunities don’t come around often. When it rains gold, quench the bucket and not the thimble.”
Here, Buffett suggests that when you see an opportunity, you should act quickly and decisively. When the odds are in your favor – for example, when stock prices have fallen significantly – you should invest heavily, because good prices may not materialize again anytime soon.
Buffett often takes this approach when markets are down significantly. He accumulates a lot of money during good times, then invests aggressively when stocks fall. Since he has a lot of safe money on hand, he can use this strategy.
4. “We simply try to be fearful when others are greedy, and to be greedy only when others are fearful.”
While some investors think investing has a lot to do with numbers, Buffett suggests investing has a lot to do with the behavior of investors themselves. When investors are greedy and push stock prices skyward, Buffett gets scared because a market downturn may soon follow.
In contrast, when investors move away from the market or a specific stock, Buffett becomes more interested because prices are cheaper. When stocks are cheaper, they don’t have the same risk as when they are expensive. And this is how Buffett thinks about avoiding losses.
The market crashed in early 2020 as COVID concerns roiled investors. However, some investors dove into the market due to fear, and the market furiously recovered from its lows.
5. “The most important quality for an investor is temperament, not intellect. You need a temperament that doesn’t take much pleasure in being with the crowd or against the crowd.”
Here too, Buffett touches on the value of temperament for a successful investor rather than intelligence. Instead of trying to go with or against the crowd, investors should analyze what’s happening in the market, regardless of who likes which stocks. By focusing on the objective facts, investors can make decisions relatively unemotionally and make better choices.
6. “The stock market is a no-call-strike game. You don’t have to go into everything; you can wait for your pitch.”
This quote is one of Buffett’s most famous and captures the essence of choosing your opportunity. You don’t have to invest until you find an opportunity you find attractive, an opportunity that meets your standards for potential reward for the risk you take.
Again, Buffett advises investors to wait until they find an opportunity where they are unlikely to lose money. You don’t need to take any risk on a stock you don’t find attractive or on a company you don’t understand.
7. “If you enjoy spending six to eight hours a week on investing, do so. If you don’t do that, you have to put dollar-cost averages into index funds.”
Buffett has long advised most investors to use index funds to invest in the market, rather than trying to pick individual stocks. By picking individual stocks, you are working against the professionals who have extensive information about companies. In contrast, if you buy an index fund based on the Standard & Poor’s 500 index, you own the market, the target that everyone wants to beat.
If you like investing, by all means, do it, but most investors will be well served by using an index fund and especially by avoiding trading in and out of stocks. Another benefit of using index funds is instant diversification, which reduces your risk. (See Rule No. 1.)
8. “You don’t get paid for activity, you only get paid when you’re right.”
There is no shortage of stock market analysts and commentators willing to tell you what to do with your money at any given time. Here, Buffett reminds investors that an active trader who constantly switches from position to position is unlikely to produce great returns. Activity may feel productive in the investing world, but all that matters is whether you were right with your analysis.
9. “In business school I tell them that they would all be better off if, when they left school, someone gave them a card with twenty punches on it and every time they made an investment decision they used up a punch. ”
Buffett uses the example of the punch card to emphasize how important it is to think carefully about the investments you make. If you only get twenty bumps in your lifetime, you’re not going to fly a kite on a stock you heard about from your neighbor. You should reserve your investments for companies that you really understand and where you think you will pay an attractive price. If you could only make 20 investments in your lifetime, you probably wouldn’t be careless when buying or selling.
10. “You only find out who swims naked when the tide goes out.”
Investing can sometimes feel easy. Bull markets can last a long time and rallies can be intense. But Buffett tells us that it’s only when the going gets tough that we discover who is truly protected and prepared to weather the storm. At several points in his investing career, Buffett seemed temporarily out of step with the current environment. But inevitably the environment changes and it turns out that those who once looked smart are swimming without a swimsuit. Always make sure your portfolio is positioned to survive a bear market.
In short
While Warren Buffett may be one of the most successful investors ever, his investing approach can be shared by many investors, even if they don’t want to spend much time in the market. Focus on implementing Buffett’s principles and you too can become rich or significantly increase your wealth.
Note: Bankrate’s Brian Baker also contributed to an update to this story.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
