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no investor is perfect and even Warren Buffett with all these Decades of experience makes a few mistakes of his own if you want to make your portfolio the best it can be then keep watching to find out Warren Buffett's take on the 12 mistakes every investor makes and how you can avoid them if you want to be a successful investor it's important to identify that your portfolio shouldn't be based only on what everyone else is doing Mr Buffett also said that he and his partner Charlie Munger have the edge over other investors because they possess the ability to not get caught up with what other people are doing the world of investing is full of many opinions schools have thought and counter-intuitive ideas often when everyone is racing to follow one particular Trend it's very likely that they are wrong using the Sheep analogy you can see that following the herd will likely get you nowhere fast if one sheep jumps over a cliff others are likely to follow Buffett says one of the most important things in stocks is that a stock does not know that you own it you have all these feelings about it you remember what you paid you remember who told you about it all these little things and it doesn't give a damn it just sits there if a Stock's at fifty dollars somebody's paid a hundred dollars and feels terrible someone else has paid ten dollars and feels wonderful all these feelings and it has no impact whatsoever I bought twenty five dollars and now six months later it is tanked twenty dollars this isn't a good investment I'm pulling out of this company this is a mistake that far too many investors make because they have lost sight of the purpose of investing take a look at this example three people invest in a company one person buys it ten dollars the second to thirty dollars and the third at fifty dollars Buffett urges investors not to sell or buy based on what the stock is doing today but on compound returns and how the company is likely to perform moving forward it's often said that if you practice every day you will get better if you feel you have to invest every day you can make a lot of mistakes it just isn't that kind of a business you have to wait till you get the fat pitch showing up every day usually means you're working towards progress but if you have been paying attention then you might have realized that many things in investing are counterintuitive while you might think it's diligent to invest every day you're more likely to make costly mistakes if you do investing is so thorough and delicate that it's very unlikely that you find outstanding and valuable businesses every day real gems are harder to find so day trading might find you smaller opportunities that are less profitable Buffett has always been a big fan of keeping your portfolio as Compact and comprehensive as possible when investing imagine you have a limited number of strikes so you can avoid getting distracted from the truly valuable opportunities if you had a limited number of strikes would you choose to waste them on things that don't add up one of Buffett's most famous quotes remains it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price Buffett has always been a big fan of simplifying investment as much as possible while it can be easy for investors to blindly invest in businesses just because they're doing well it's also important to understand what the business does how it operates and what its fundamental values are in his 1996 yearly shareholders letter Buffett wrote intelligent investing is not complex though that is far from saying that it is easy what an investor needs is the ability to correctly evaluate selected businesses note that word select it you don't have to be an expert on every company or even many you have to be able to evaluate companies within your circle of competence diversifying your portfolio is a risk management strategy diversification is a protection against ignorance I mean if you want to make sure that nothing bad happens to you relative to the market you own everything there's nothing wrong with that I mean that that is a perfectly sound approach for somebody who who does not feel they know how to analyze businesses investors select stocks from various and mostly unrelated sectors to avoid the all eggs in one basket syndrome it exposes you to different businesses sectors and asset classes while diversifying has its pros doing too much of it can put your portfolio at risk when it comes to Buffett's investing strategy diversification isn't a term that the Berkshire Hathaway chairman is also excited about in a Berkshire Hathaway annual meaning Buffett said the diversification is best applied when an investor does not know a lot about investing he also said that there's no need for one single portfolio to have an excessively large list of stocks simply because there aren't that many excellent stocks to begin with following this Buffett advises investors to do the right research and know enough to pick a modest number of stocks but are sure to perform well over time if you are a no something investor there will simply be no need to have too many stocks in your portfolio often when you have a stock that you're certain of its success what stops you from investing in it is your perception of the market when you underestimate what the market can do you tend to miss out on great opportunities Mr Buffett says there have been many times where there have been opportunities and things within his circle of competence which he never took up this also relates to the point where we discuss being attached to the purchasing price if you have a stock in your portfolio and refuse to buy more of it because it is higher than your initial purchase price this is a mistake of a mission sometimes errors of a mission can be as easy as endlessly waiting for the price to come down for many valuable businesses it hardly ever does Monger revealed that he committed an error of a mission back in his earlier investing days he was offered over a thousand shares of bellridge oil for very little money he passed on it because he didn't want to take the risk later on belridge would be sold for an impressive markup that could have easily multiplied monger's investment by over 300 times of course she can never truly predict what will take off and what will not but if something is well within your circle of competence Mr Buffett says go for it aggressive growth predictions can be appealing to the ear but they are hardly ever achievable Buffett says that only very few businesses can manage to achieve the astonishing growth they promise often investors may find that they are carried away by the expensive price tag the current success and Wishful forecasts at Buffett explains expecting such exponential growth and investing based on that is a huge mistake now this doesn't mean you need to stay away from companies with promising growth projections even Buffett has made a habit of investing in growing companies including some of his recent purchases he also especially loves investing in growing companies that only require a reasonable Capital highly priced companies will need more Capital to grow and have tangible returns a concept that doesn't sit right with Buffett's investment strategy Beware of the high priced rapid growing businesses that are creating a buzz can they stick it out long term if your portfolio selections are based on Market timing and predictions Mr Buffett says you're making a serious mistake the market is far too volatile and unpredictable to base your selections on what it does it is also very uncontrollable making you a Sitting Duck if you take all the cues from timings and predictions this is easily swayed by just about anything pop culture Trends natural disasters War inflation you name it what you need are stocks that are strong and relevant enough to weather whatever Storms Come in the market Mr Buffett says you only need two things as an investor the important things and the knowable things to invest you only need to focus on the things that are important sure War inflation and natural disasters are important in navigating the market but are they knowable can you predict what the stock market will do when it opens next probably not but you know the superior companies will make it through thick or thin Buffett has praised only a few companies capable of doing this like Coca-Cola leverage at its most basic definition is borrowed money investment is really a patient long game and nothing spells Doom like a portfolio built on too much borrowed money now you might think even the best investors use leverage and they're fine what's so bad about using leverage leverage in itself is an inherently good or bad it increases your investing capacity and helps you spread your reach however like everything else too much is never good the broker you borrow money from can not only pull the plug on you at any time but they can also seriously hinder your profit between maintenance fees margin calls and the shares you owe to the broker in exchange for their leverage you'll find that you're barely investing for yourself and instead doing so for your broker Mr Buffett admitted that Berkshire Hathaway probably could have made more money faster if they chose to use leverage but they also could have lost a lot of money faster too he is also warned against investing in entities that are highly leveraged as this puts them in weaker positions he says invest within your competence and carefully select reasonable priced super your stocks in his 2018 annual letter to shareholders Mr Buffett included a section called focus on the forest forget the trees where he pointed out a common investor mistake he wrote investors who evaluate Berkshire sometimes obsess on the details of her many and diverse businesses our economic trees so to speak analysis of that type can be mind-numbing fortunately it's not necessary to evaluate each tree individually to make a rough estimate of berkshire's intrinsic business value when investing it can be easy to get caught up in a web of details in many of his meetings Buffett has emphasized the importance of making proper assessments of a business's future to focus on the things that count Mr Buffett asks you to consider these three things only the future economics of the business in the industry the management running the business and the price it's selling for the right company for you is one that has the potential to grow is run by honest and smart management and at a reasonable price if you get bogged down by the unimportant stuff you'll miss the forest for the trees so you have your selection of great stocks and you think that's where it all ends a good investor never takes his eye off the market completely The Berkshire Hathaway chairman encourages investors to read everything inside speak to a diverse group of people and explore businesses to understand them in the 2007 annual meeting Buffett revealed that he and Munger always had curiosity about things and this led them to discovering many opportunities that bloomed excellently for them he advised investors to look at different kinds of businesses and Market angles so that you don't shrink your Universe of opportunities confirmation bias can be an Investor's greatest enemy when you have an idea about a particular business and you set out for more information it's possible that you only search through the lens of confirmation seeking rather than seeking counter-intuitive opinions to guard against confirmation bias Buffett says he uses Berkshire Hathaway's annual report as a feedback mechanism to check any biases he also emphasized the importance of having an extremely logical partner who isn't subservient avoid receiving information in a way that serves to preserve whatever beliefs you already hold seek challenges and opinions that will critique your beliefs to avoid biased decisions as Buffett has said many times stocks in the market do not have emotions so treat them as such and with that we've come to the end of the video don't forget to like And subscribe for more financial investment content
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