Three More Lessons From One of the World's Greatest Investors

If there's one person you should listen to and learn from, it's Warren Buffett.

Buffett is one of the most famous and successful investors of all time. His track record is the envy of everyone on Wall Street.

He not only makes money, he also teaches – something he's done for decades. And most of his advice is timeless.

No matter what your situation is... whether you're sitting on a portfolio of $100,000 or just starting out in the investing game... you'll be able to benefit.

Yesterday, I shared one lesson that Buffett's example teaches us. Today, I'd like to discuss three of his favorite pieces of wisdom – some of the best ideas he's shared with investors over the course of his career.

The first lesson I want to go over today is...

  1.  You should always buy stock as an owner, not a speculator.

I can't stress this enough... When you buy a stock, you are buying an ownership stake in a company.

First-time investors always make the same mistake. They buy a stock and then check its price every hour on the hour for the first few weeks.

If the stock doesn't shoot up right away, these folks get bored and frustrated. Then they sell, never giving the stock a chance.

Don't get caught up in day-to-day price movements. Instead, Buffett says to think about buying a company that makes great products, has strong competitive advantages, and can provide you consistent returns over the long term.

As he said in his 1996 letter to Berkshire Hathaway investors, "If you aren't willing to buy a stock for 10 years, don't even think about owning it for 10 minutes."

The second lesson I want to share today is...

  1. Be a contrarian.

Regular DailyWealth readers know that going against the grain can lead to big profits.

Buffett agrees. In 2004 he wrote, "Be fearful when others are greedy and greedy only when others are fearful."

For the most part, Buffett believes that markets are efficient, with asset prices closely reflecting all available information. But we all know there are certain times that rational thinking gets thrown out the window.

As he said in 2017, "Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon."

There's no better example of this than when Buffett was buying stocks after the 2008 financial crisis. Every other investor was scared to death. But Buffett stepped up and saw an opportunity. He even wrote an article in the New York Times titled "Buy American. I Am."

In it, he talked about the billions he spent on stocks that were trading for absurd bargain prices.

Now to be fair, the average investor doesn't have the capital to endure the crash of 2008 and then start buying near the bottom. But it's the conviction I hope you take from this lesson. If you see a situation where you know the herd is wrong, be bold.

The last lesson I want to share today is...

  1. Buy boring.

I love investing in companies that make products people actually need – products that aren't "sexy." The more boring, the better.

Buffett is a big investor in boring. He invests in boring companies that he knows will be around for decades, like soft-drink maker Coca-Cola (KO), consumer-goods titan Johnson & Johnson (JNJ), and credit-card giant Visa (V). He generally avoids companies that are considered revolutionary or innovative.

Here's what he said in his 1996 letter to investors...

I should emphasize that, as citizens, Charlie and I welcome change: fresh ideas, new products, innovative processes and the like cause our country's standard of living to rise, and that's clearly good.

As investors, however, our reaction to a fermenting industry is much like our attitude toward space exploration. We applaud the endeavor but prefer to skip the ride.

I occasionally recommend investing in innovation, but it's important to keep those speculations to a small percentage of your portfolio. The majority of an equity portfolio should be made up of boring companies – companies that slowly increase sales and that you know will still be selling the same products 10 or 20 years down the road.

No matter your experience level, these three insights are crucial to your wealth-building success. If you want to make 2019 the year you become a better, more consistent investor, start applying these lessons today.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Doc's about to do some teaching of his own... Next week, he's hosting his first-ever Trading Master Class to show you how to use his newest trading strategy. It's designed to multiply potential gains in stocks by as much as 10 times... And as a bonus, Doc's even giving away one of his highest-conviction buy recommendations.

You can check out the demonstration online, for free, on June 19 at 8 p.m. Eastern time. Sign up here to reserve your spot.

Further Reading

Catch up on Doc's essay about supercharging your retirement savings in yesterday's DailyWealth: The Simplest 'Buffett-Style' Way to Grow Your Wealth.

"It's a nearly universal impulse... but it's a terrible investing choice," Doc says. Investors are guilty of this common mistake... but you don't have to be one of them. Learn more right here.

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Once you know what stock you want to buy, there's still one critical rule left you can't ignore. And it's one every investor needs to follow...

Market Notes


Today's chart shows what happens when a bad situation starts to improve...

Regular readers know Steve's "bad to less bad" trading strategy. If a stock has plummeted, it doesn't have to skyrocket again for investors to make big gains... It just has to get "less bad." Today's company is a former Wall Street darling that has regained some of its past momentum...

Under Armour (UAA) is an $11 billion maker of athletic apparel. Its shares saw explosive gains leading up to a 2015 peak... Then, the company's rapidly rising sales leveled off. Shares collapsed nearly 80% in two years as hypergrowth-hungry investors threw in the towel. But that initial panic is fading... Even with revenue rising only 2% in the most recent quarter, Under Armour still raked in $1.2 billion – and it just raised its outlook for 2019.

UAA still trades at just half its 2015 levels. But it has come a long way from its 2017 bottom... Shares are up about 130% since then, hitting new multiyear highs. A struggling company can actually be a great investment if things get "less bad"...