3 Warren Buffett lessons every investor should know

| Last Updated June 6, 2022

new watch on a successful investor

The Oracle of Omaha, Warren Buffett, has many lessons the investing community can learn from. As a teenager, he bought his first stocks and took his biggest bet in a failing textile company. Later he transformed Berkshire Hathaway to be one of the largest conglomerates in the world. 

With more than half a century into investing, lessons from Warren Buffett should be taken seriously. That being said, here are three Warren Buffett lessons every investor should know about.

Warren buffett’s three rules of investing

Warren Buffett’s #1 rule is “Never lose money”. Obviously, this is impossible with every investment, courtesy of the volatile stock market. However, it’s an instruction for investors to not be frivolous in making investment decisions. An investor should take calculated risks. In line with this rule is that investors should consider the ups and downs of an investment before going into it. Simply buying a stock because it’s started going up is not a winning strategy over the long term. 

Warren Buffett’s #2 rule of investing is equally simple, “Don’t forget rule #1″. In my opinion, this is needed for anyone to succeed in a bearish or market crash. Every investor wants to make money and survive to invest the next day. Therefore, not losing money and not forgetting rule one will make the investor wiser in the investment decisions that are made. At least that’s what I think.

The third rule is to see owning stocks as owning a piece of the company. Warren Buffett learnt this through Benjamin Graham, who is regarded as the father of value investing. Here is the lesson to learn from this philosophy. When an investor knows that they own a piece of the company by buying the shares, they look forward to owning great companies. Also, it helps in watching out for great bargains. Going along with this lesson is that when the business does well, the stock will subsequently do well given time.

Don’t be afraid to sell bad investments – even at a loss

As much as Warren Buffett is a long-term investor, he is not afraid to sell an investment he considers bad. This is in line with one of my favourite quotes. “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks”.

Being able to sell bad investments even at a loss is good for the investor, in my opinion, as it can help curtail excessive losses. 

Final thoughts on Lessons to Learn from Warren Buffett. 

When Warren Buffett speaks, people listen. Every year, hundreds of thousands of people troop into Omaha, Nebraska, to listen to him. It is not surprising when you consider the credence the Oracle of Omaha has built for himself. For over two decades, Warren Buffett has consistently featured in the world richest people list. These lessons have helped him to amass wealth, and they still work today.

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Views expressed on the companies, assets and strategies mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.