He's worth over $107 billion because of investing

PRESENTED BY:

Warren Buffett built a $107 billion net worth through investing.

Lucky for us, he's written an annual letter to the shareholders of Berkshire Hathaway (his investment company) showing us how he did it.

Here are 10 investing lessons from Warren Buffett:

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1. What you own

What you invest in and how you invest is important.

Buffett focuses on businesses with great moats (competitive advantages) and great management.

But the keyword here isn't "moat" or even "management..."

It's businesses.

Buffett has said it time and time again.

He isn't a stock picker.

He's a business picker.

2. Diversification

Most people see diversification as a good thing.

All things held equal, diversification means you're taking on less risk.

But this isn't always the case.

There's such a thing as being over-diversified.

You see this with investors that have over 30 individual positions.

Just because you’re diversified doesn’t mean you’re taking on less risk.

And on the flip side, just because you have a concentrated position doesn’t mean you’re taking on too much risk.

Concentrating on a few stocks can decrease your risk if it means you’ll pay more attention to the business.

Diversification is good, but don't sleep on concentration.

3. Market pricing

A stock price shouldn’t determine whether you buy or sell.

There are 5 reasons to sell an investment:

• Portfolio rebalance

• You met your goals

• You need the money

• You found another opportunity

• The stocks fundamentals changed

Each of these depends on your investment strategy and life events.

Neither of these depends solely on the stock price.

In the short term, people vote with their dollars on which stocks will do well. This increases or decreases the stock price.

But in the long term, stocks with the most value do best.

4. Be greedy when others are fearful

When money is cheap, hold on to it.

When money is expensive, invest it.

Every so often doom and gloom will hit the stock market.

This is your opportunity to run towards the blood with wads of cash.

Instead of running away and selling your stocks for pennies on the dollar.

5. Buy businesses that reinvest in themselves

If it’s a great company, with great management, and great profits…

Why wouldn’t they buy back stock?

This creates an element of compound interest.

Except instead of your returns compounding, it’s the business's operations.

6. Prioritize moat

If a business model produces high profits, you can bet there will be tons of competition.

Businesses that thrive in this environment have one thing in common:

A moat.

A business moat doesn’t only keep them profitable, but it keeps them in competition long term.

This is crucial for long-term investors.

7. Buy boring businesses

Especially if these businesses sell products/services people need.

• Utilities

• Waste management

• Carbonized beverages

• Consumer discretionary

• Commodity/Natural resources

Boring businesses in these areas provide stability and longevity to your portfolio.

This allows you to make money for longer periods of time.

8. Invest like a sloth

Newton's 3rd law of motion states that an object in motion tends to stay in motion.

But he has a secret 4th law:

“For investors as a whole, returns decrease as motions increase.”

Most investors would make more money if they bought and held instead of buying and trading.

This applies to rebalancing too.

Here’s what I mean…

9. Rebalancing your portfolio

Most people trim a position once it gets too large.

Buffett doesn’t recommend this.

He says, selling positions that have become too large is the same as the bulls trading Michael Jordan because he’s become too important to the team.

Don’t sell your winners.

Let them keep winning.

10. Time and businesses

Time is the friend of great businesses but the enemy of the mediocre.

Just because a company does well short term doesn’t mean it’s sustainable.

“When the tide goes out, you’ll see who’s been swimming naked.”

This applies to businesses too.

That's it for today's email. Thanks for reading!

Wolf