7 amazing investment tips from the “Oracle of Omaha”

An “oracle” is traditionally somebody who offers advice or delivers a prophecy, often thought to come from divine origins.

Stories of legendary oracles like Pythia, who delivered prophecies from the Greek god Apollo, tell of people traveling from far and wide to hear her wisdom.

It is perhaps quite fitting then, that Warren Buffett is nicknamed the “Oracle of Omaha”. Many investors closely follow the world-famous businessman hoping to learn the secret of his success.

His strategy is not a closely guarded secret and he often speaks publicly about the core concepts at the heart of his investment decisions.

Here are seven amazing investing tips from the Oracle of Omaha.

1. “If you’re not willing to hold a stock for 10 years, don’t hold it for 10 minutes”

Warren Buffett always stresses that taking a long-term approach is crucial for success. He is a value investor, meaning that he looks to invest in companies with high potential for growth.

This strategy often depends on holding investments for a longer period, and this may be one of the best lessons you can learn from him.

Indeed, a study from Nutmeg shows that if you invested in the stock market for a single 24-hour period between January 1971 and July 2022, your chances of making gains would be 52.4%.

However, if you invested for 10 years during that same period, your chance of positive returns would increase to 94.2%.

That’s why Buffett says that if you’re not willing to hold an investment in the long term, it may not be the right choice.

2. “The most important quality for an investor is temperament, not intellect”

Many investment losses come as the result of emotional decisions, especially during a difficult economic period.

When the value of an investment drops, and high inflation threatens your wealth, you may be more likely to panic and make reactive decisions. However, diverging from your long-term financial plan could well leave you worse off later in life.

As Buffett says, temperament is the most important quality for an investor. If you can remain calm and hold investments, you may be more likely to benefit from long-term gains and protect your wealth.

3. “Never depend on a single income. Make an investment to create a second source”

Typically, generating enough income to fund your desired lifestyle during retirement will be one of the main aims of your financial plan.

This is something you may want to consider when developing an investment strategy, and Buffett would agree. He advises against depending on a single source of income and instead investing to create a second source.

You may be more successful with your investments if you consider how they will generate income in later life and base decisions on this goal.

4. “Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value”

Understanding the role that cash plays in your financial plan is crucial and Buffett feels very strongly that it is not a good long-term asset.

While it is important to have an emergency fund, keeping too much of your wealth in cash savings can be a risk. This is especially true at the moment because high inflation could cause your savings to lose value in real terms.

In some cases, investing is a more effective way to encourage growth and counteract the effect of inflation. As such, you may want to consider a balanced approach that combines cash savings with investments.

5. “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future”

While many investors look to Warren Buffett for advice about investment strategies, he does not claim to predict the future. And he warns against listening to anybody that does.

There are lots of so-called “experts” who make predictions about the way markets will move but there are countless examples of them getting it wrong in the past. Additionally, their investment goals may not align with your own, so their recommendations might not apply to your unique strategy.

Instead of making decisions based on the opinions of others, shut out the noise and trust in your own financial plan.

6. “The best chance to deploy capital is when things are going down”

A 2022 study from NerdWallet found that 46% of people cut back on contributions to savings, investments and pensions in response to the cost of living crisis.

Buffett suggests taking the opposite approach as he believes that the best time to invest is when markets are uncertain. During a market downturn, you may be able to buy stocks and shares at a cheaper price.

If you follow his long-term strategy, this could mean larger returns in the future if and when the markets recover.

Naturally, it is important to consider your own financial goals and whether investing is the right choice for you – irrespective of what is happening in the wider economy.

7. “Risk comes from not knowing what you are doing”

Investing typically carries some risk. That said, you might be able to reduce the risk by taking a measured approach and, perhaps most importantly, staying informed.

In Buffett’s words, “risk comes from not knowing what you are doing”.

Working with a financial planner can help you make informed decisions so you can work towards your wider medium- and long-term financial goals.

Get in touch

If you need advice on how to put these investing tips into practice, we are here to help. Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.