5 Important Investment Lessons Millennials Can Learn from Mr Warren Buffett

February 26, 2022 Mutual Fund

Simply earning money and keeping it idle in a bank account or just saving your hard-earned money may not be sufficient to meet your long-term financial goals. Investing your money into various investment avenues has the potential to help you beat inflation and earn positive returns over time.

When it comes to investing in financial products, millennials appear to be a more risk-taking generation. However, a high-to-medium risk instrument may not always offer high profits and vice versa, making it critical for millennials to invest prudently. The financial landscape is dynamically evolving, especially in new technological and innovative areas. As a result, a new paradigm shift in how Millennials invest and manage their money has emerged.

Instant gratification is quite important for millennials in today’s fast paced world. In the last several years, due to the ease of access and immediate fulfilment of financial necessities, such as payments, loans, insurance, and even investments through various apps, digital financial transactions have seen rapid adoption across the board.

Millennials and Generation Z are the next growth engines for investment funds and the economy, and they’re excited about newer investment tools that can help them generate money in the short-to-mid term with instant liquidity and minimal collateral, rather than locking up their disposable income for years for the foreseeable future. Millennials are shunning traditional investment strategies in favour of digital alternatives like AIFs, mutual funds, and cryptocurrency. It is essential for millennials to make worthy investments based on their suitability of risk appetite and investment horizon in order to secure their financial future.

Recently, I was with my cousins over the weekend, and they were having a discussion on the current market scenario and which financial products are investment-worthy. My brother Rohit asked me, “Mitali, what do you think about investments in these prevailing market conditions? Should I go for mutual funds or directly start stock trading?”

To which I responded, “Rohit, your investments should depend on your suitability to your risk profile investment horizon and goals. You should aim for a well-diversified portfolio with investments in various asset classes that provide decent returns during various market phases. In simple words, you need to have a prudent investment approach towards your investments in several financial products and not simply go for any suggestion or advice.”

My elder sister replied, “Rohit, why don’t you start reading investment-related books? You could begin with “The Warren Buffet Way” this book will give you a basic idea of the investment world.”

To which I replied, “Yes, there are several investment lessons you could learn and practise from Mr Warren Buffet that can guide your path to investing in a systematic and efficient manner.”

Mr Warren Buffet is known as one of the most successful investors in the world. He is also famously known as the ‘Oracle of Omaha’. He is one of the most respected personalities and has been a guide and great source of inspiration to numerous investors worldwide. His philosophy of investing is clear and logical, which makes it attractive for investors.

Mr Warren Buffet’s sound investment concepts can actually complement the new innovative ways of Millennials. We could be much better wealth creators and maintainers if we could master some of his principles in the context of our own surroundings. While Millennial investors have several decades to save for their retirement, learning the patience that Buffett exudes in his investment strategies can go a long way. Patience is probably his strongest quality, and it has helped him increase his portfolio returns.

Let us have a glance at a few of the investment lessons that millennials can take away from Mr Warren Buffet to practise investing wisely and secure their financial future:

1. Do thorough research before investing

“Risk comes from not knowing what you are doing” – Mr Warren Buffet.

A little bit of research can reduce a lot of risks. Research is the primary rule of investing in any financial products; study holdings before deciding whether to invest in ETFs/Index funds, various asset classes, direct equities, etc. and assess the historical data. Although the past returns are only to provide you with a better understanding of the investment avenues and not an indication of future returns. Your study and research of all these are important factors that will improve your understanding of the market and reduce your risk when participating in it.

One of the best Buffett quotes that new millennial investors can absorb is, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Mr. Buffett sees information as something that accumulates over time, and he feels that accumulating as much investment knowledge as possible is a big part of his success. In the long run, Mr. Buffet has benefited from research by reaping big returns on his investments. As a result, millennials should conduct thorough research into investment avenues and their holdings to make worthwhile investments.

2. Have a long-term investment approach

“Someone’s sitting in the shade today because someone planted a tree a long time ago” – Mr Warren Buffet.

This quote forms a foundational pillar of Buffett’s long-term investment ethos. He is referring to here that in life, as with investing, you have to think about the grand trajectory of things in the long run. A tree takes time to grow, and so will most smart investments. Start early, be patient, and let your money grow. You should not prefer to scour markets looking for short-term aberrations; instead, opt for fundamental long-term growth.

Buffett preaches that the smart investor should also assess a stock by the company’s strengths and weaknesses, looking for long-term advantages it can win within its industry.

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

The point is that you should not hold an investment in the short term if you are not willing to hold it for the long term. For instance, instead of losing sleep over the short term fluctuations of an ETF investment, you should focus on its long-term potential and its fundamentals, does it have good enough diversification, is the expense ratio low, is the ETF provider trustworthy, is liquid enough, how well does it track its underlying index, etc. You should not invest just because their price valuations are going to rise this week, this month, or even this year. You must make investments aiming for significant returns over the long term.

3. Do not time the market

“The most important quality for an investor is temperament, not intellect” – Mr Warren Buffet

A disciplined investor is a wealthy investor because they have learned that market fluctuations are normal and that patience pays off. Humans are by nature irrational beings and are often tempted to make trades when they think the market is working against them. In contrast, it is the well-tempered investor that learns not to time the market, and this is the person that ultimately ends up reaping the most rewards over the long term.

Mr. Buffett commends that to build more wealth does not require you to be necessarily smarter than another investor, but rather that you become more disciplined with your reaction towards the volatility of the market during various cycles.

“Be fearful when others are greedy. Be greedy when others are fearful.”

By rationally learning to work against this status quo, we learn that you should avoid following the herd mentality or running into a trend that may lead to disaster. The best way to fight this greed and “become rich” is to think long term and make worthy investments. As Buffett does, the best way to invest is to ignore the crowd entirely and focus on finding value on your own.

4. Do not borrow money to invest

“It is much easier to stay out of trouble now than to get out of trouble later” – Mr Warren Buffet.

It’s insane to risk what you have in need for something you don’t really need. To borrow money and put it into assets that have so much risk is never a good move. There are many events when the markets greed can catch up, and many investors may get tempted to invest every rupee to maximise their return.

Some will go even a step further and invest in the stock market by borrowing money or even taking a loan, thinking that the cost of borrowing is lower than the returns expected from the investments they make. You should never borrow money to invest, as the market-linked investment avenues are always risky. If the situation changes, you will be staring not just at the loss of your investment, but also it will create an unnecessary debt burden for you to repay the borrowed money taken to invest as well. A sound strategy is to follow your defined investment allocation through your existing monthly surplus and existing investment portfolio. Start small and gradually increase your investments.

5. Invest in yourself

“The most important investment you can make is in yourself” – Mr Warren Buffet.

Perhaps the greatest thing that could be gained from Mr Warren Buffett’s life is to invest in yourself. Whether it be developing a new skill, getting exercise, or simply sleeping enough, taking care of yourself and self-improvement will always pay off.

You should constantly invest in two things – your ability to make money and your ability to make money work for you. You should also invest in your financial education, attend webinars, and consume content from other reliable financial resources. Financial literacy is vital in everyone’s life; your financial knowledge will effectively help you achieve your long-term investment goals.

Financial literacy will make you equipped with the nitty-gritty of financial planning, and you will have a better understanding of the markets. You will be able to make informed investment decisions and become a financial guardian for your family as well to guide them in making informed financial decisions.

There is a lot to learn from Mr Warren Buffet and above-mentioned are a few important investment lessons that millennials can adapt and practise to lead the investment path and secure their financial future. However, you must enhance your financial knowledge to comprehend such investment lessons and be financially aware.

This article first appeared on PersonalFN here