Investing lesson is important for every one of us. This is so because it ensures our future financial independence. Warren Buffett is a name which does not require any introduction. He is the third richest person in the world for years. He is the living example of investing wisdom since decades and his learning is free but priceless. There is a famous saying that ‘you get what you pay’ but this is not true with Warren Buffett, he proved that ‘price is what you pay and value is what you get’.
Here are 5 precious investing lessons from Warren Buffett:
Investing lesson 1 – price is what you pay, the value is what you get
It is one of the Warren Buffett’s favorite and old lessons which reveal that price and value are not always same. The value in simplest form is the present value of future cash inflow.
Most of the time we don’t get the value of we pay for something. We don’t see any correlation between what you are paying and whatever you are getting in return. Suppose you go to a very good restaurant but you did not like the food there as you pay the charges, does it?
When we talk about investment, especially in stock markets, the price of a stock is mostly governed by the sentiments of the market and not necessarily by the profitability or market value of the company. For this Warren Buffett suggests that one should buy shares when the price you have to pay for the stock is less than the actual value of it. To explain this he says that “Whether we are talking about socks or stocks, I like buying quality merchandise when it is marked down”
Invest in such assets that will generate long-term returns which will beat the inflation and try to hold on it for a long time.
Investing lesson 2 – if you buy things you don’t need, you will soon sell things you need
Making investments and taking up the second job is not only the way of making more money. Mostly it depends on your spending habit. In this quote, Warren Buffet is saying that one should be fully aware of whether you are spending on unnecessary things which is of no use. Sometimes we go out and spend our hard earned money on useless shopping and eating outside just out of our temptation end up with regret. By just spending money without giving a second thought, you are making someone else’s rich.
There is a very great saying – “A penny saved is a Penny earned”.
To become a successful investor you should spend your hard earned money wisely. It is not about being a penny pincher but about being smart. Invest in assets that will give you good returns over the long period that will help you in securing your financial future.
Investing lesson 3 – be Loss-averse
Majority of investors’ measure the performance of stock based on its return irrespective of the risk involved in it. Warren Buffett advises that you should not struggle just to make each Rupee a potential profit which involves too much of risk instead of that you should be loss averse. Preserving your capital should be your top priority. That you can do by avoiding losses.
He says that “Rule No. 1 never lose your money. Rule No. 2, never forget Rule No. 1”
This means while investing in stocks one should never be greedy, instead of that one should focus on such stocks that are undervalued and the companies that you understand and has long-term potential.
Investing lesson 4 – be tax savvy
Be a tax-savvy means save capital. Despite the richest person Buffett is also a tax-savvy.
To save the tax you should be knowledgeable about tax laws and use them to plan your tax in order to save it. While investing you make sure that you understand the tax implications of your investments.
For example, when you invest in bank FD, you get 9% return. However, interest income is taxable. You did not get a tax rebate on this return.
All that means you should understand the tax implications of your investment completely.
Investing lesson 5 – limit what you borrow
Nowadays there are so many tempting offers from e-commerce companies. This might force you to buy the latest mobile on attractive EMI. Considering fact here is that the phone you bought for EMI plus processing fee. This is indirectly the interest on your EMI. But your phone will lose the value over a period of time. So it is advisable that you should limit your borrowings either it is loan or credit card purchasing. It reduces your earning in hand.