Warren Buffett is a renowned American investor who has made a fortune through his tactics and decisions to invest in online earning website like the stock market. Buffett’s fundamental strategy and the one that has given him most of his fortune is based on three simple steps that he has managed to perfect over time.
Buffett Investment Strategy:
- Waiting for a good opportunity to invest in a company’s stock.
- Buy shares within the company and invest whatever is necessary.
- Maintain the investment for a long period of time.
Repeating these three steps made it possible for Buffett to invest in successful companies such as Coca-Cola, Apple, Bank of America and American Express. But what is the root of Warren Buffett’s success? Well, it’s not about his strategy, although it may seem to be the opposite, but about his temperament when investing in stocks. Temperament is one of the keys to a successful investment, coupled with patience to wait for the fruits of the investment.
In the many interviews that the famous investor has given, he explains that not all people are prepared to invest in shares, because they lack the mental and psychological integrity to make important decisions like those, and because they lose their temper in the face of any market crash, this makes them act impulsively to try not to lose their money, but that due to bad decisions, they lose it anyway.
However, Buffett proposes a new strategy to invest in the year 2022, which will benefit investors with a very fluctuating temperament. It is passive investment in index funds, a trend that although it already has a few years in the market, has become the most reliable and profitable in the long term. Learn more about this form of investment!
New Money’s Brandon Van Der Kolk teaches us why Buffett’s passive investment strategy is best suited for most investors. Van Der Kolk explains that the reason some people lose money by investing is not because they don’t find the right company to invest, but because they let themselves be influenced by their emotions when buying and selling their shares at the wrong times.
But, what can you do if you recognize that you are an investor with a fluctuating temperament? The best option apart from recognizing your weak point, is to resort to passive investment in indexed funds, this type of funds are a conglomerate of shares of several companies that represent a diversification of a type of market, the idea of passive investment is to choose one of the indexed funds and invest in it consistently once a year, after a decade you will get substantial returns from each of the companies.
Investing in indexed funds relieves the stress of having to decide which company and which action is best for you to invest, so you will not be afraid of losing your money, and anyway, as it is a conglomerate of shares, you will be able to make profits from at least one company that has progressed during this time. Thus, with investing in indexed funds you don’t need to have the right temperament to invest in stocks, but simply you need to be consistent and patient.
Warren Buffett talks about his experiences in the first investments he made in 1942, which turned out to be precisely on indexed funds, and despite the fact that the United States and the world were plunging into wars and economic crises, Buffett decided to trust that his country would improve over time and that the progress of the companies would come with it. Warren invested $10,000 in his first index funds, and after decades, today his net return on this investment is $51 million.
This shows that Buffett put aside the concern of what action would be the right one or how he could avoid market crashes, and simply invested in a conglomerate of stocks that today represent him a fortune.
“You didn’t have to worry about what stock to buy, and you didn’t have to worry about what day you would buy or sell.”
– Warren Buffett.
Something very important that Van Der Kolk highlights, is that this passive investment system in index funds works only if you are a patient person, and you give enough time to your investments to deliver benefits. This means that when investing in indexed funds you have to be willing to invest for decades so that in the future you get a significant return.
Although investing in index funds is a great strategy, there may be times when markets do not progress, even over periods of time as long as a decade. For example, from 1966 to 1978 the market did not progress, but waiting another decade, investors obtained a return of 187%. It was 12 years without returns, but 22 years of 187% return. It’s a strategy that works consistently if you continue to invest.
In nature, the strategy of investing in indexed funds is that you want to invest in stocks without having to predict or choose which companies will progress over time, so you invest for a group of them and the earners will report you returns. So, if you have a general notion that the market is going up, or that it is at a stable moment, it is smart to invest in index funds for a long period of time.
Buffett is so confident about the operation of this strategy, that it ensures that people who invest in index funds will make more profits over time than people who choose the stocks they are going to invest in. Indexed funds outperformed returns with a figure of 90% as opposed to active stocks, with a return of 70%.
Want to learn more about other types of investments? Click here.