Investing is one of the most important parts of obtaining financial freedom
Not everyone has the investing skills of Warren Buffet.
But here's some key information and habits to help you that worked for the great man himself.
1. Compounding
The 8th wonder of the world.
It works over time to magnify everything but very powerful in investing.
Even small amounts compounded for many decades grow significantly. For example, Just $1 saved at age 10 would give Warren over 13 million dollars at age 90.
The key is to not interrupt it.
Time in market beats market timing
$100k initial investment @ 8% p.a. over 30 years and you are a millionaire.
Benjamin Franklin was quoted as saying "Money makes money. And the money that money makes, makes money."
Your money can work 24/7/365.
So keep building and adding and surf the compound interest wave.
2. Patience
Buffet started young and has had the longevity to keep investing all his life.
Most of the gains from compounding come in the later years.
Buffett has been investing since he was 10 years old and now has an investing career spanning eight decades.
Resisting the urge to sell during downturns or highs of bull markets are hallmarks of great investors.
There can be long periods of nothing happening in the stock market and then a lot happens in a few weeks.
Patience can be developed.
3. Consistency
Buffet consistently invests in quality companies over time.
And just stays invested.
One good way for regular investors to follow this approach is by having a strategy.
Invest affordable amounts consistently each week/month/quarter.
This method is sometimes called "Dollar Cost Averaging" and it smooths out the price you buy at - avoiding timing of the market.
4. Managing Emotions
Many decisions to buy or sell are made based on what people hear others recommending at work, dinner parties or friends over a few drinks.
You need to be independent.
Block out information from the environment around you unless it has big validation.
Life can throw up surprises so always have an emergency fund.
Having an emergency fund gives you the security to deal with any situation thrown up by the market.
5. Understanding
Buffet will not invest in something unless he understands it inside out.
Blindly investing in stocks just because you know their name, use their products, etc. is not the only criteria.
It can be a good starting point but you need to go deeper.
Research everything thoroughly before you invest to build out your conviction.
When the market dips, your conviction allows you to hold or even buy some more.
6. Focus
Warren Buffett's secret to success is intense focus — instead of doing more, he does less.
He once told his pilot that in order to reach his goals, he needed to do three things.
The first was to write down his 25 top goals, and then circle the top 5 most important.
Then, separate the top 5 into their own list — and goals 6-25 get put on a 'not to do' list.
Ignore everything on the 'not to do' list until you've achieved your top 5.
Information is abundant in today's world and it can tug at our attention constantly.
Market noise and commentators trying to predict whether the market will be up or down next week.
Focus on your long term plan.
Build up barriers around you to prevent distraction.
7. Self Educating
Buffet once said "The more you learn, the more you earn"
Knowledge around investing has never been so available but you may still not be informed.
Self educate on investing now.
The best way is to actually start by doing. Begin with small amounts.
Read/listen books, podcasts, YouTube - many are free.
"The Psychology of Money" - @morganhousel
is also an excellent resource for all levels of investors.
@morganhousel Investing is a skill for life and should be part of any financial literacy education given in schools.
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