Three lessons from Warren Buffett that are worth paying attention to right now

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Beginners and experienced investors are navigating an uncertain investment environment affected by inflation, war and epidemics.

There are demands for financial transparency and strategy, as demonstrated by thousands of Berkshire Hathaway BRK.B,
-2.53%
Shareholders who have met for their annual conference on April 30 in Omaha, Nebraska, or watched a live stream on CNBC.

Warren Buffett, chairman and CEO of Berkshire Hathaway, is one of the richest men in the world, a 91-year-old investor and business legend known for his strategic financial advice and skills. Here’s what you can learn from him about inflation, index funds and value investing, and what you can do today to level up your financial portfolio.

1. Inflation is beyond the control of investors

Inflation “deceives almost everyone,” Buffett reminded investors April 30. Prices for goods and services are rising, which means the US dollar could buy less than it did a year or two ago.

U.S. families already struggling with decades of wage stagnation are now battling rising food, gas and shelter prices to name a few. And when market changes and global events emerge from the sphere of influence of an individual investor, it is wise to focus on what consumers can control. In most cases, this means sticking to your investment strategy – after all, as Buffett suggests, investing in the long run is usually the best way to lose inflation.

See also: Warren Buffett’s investment skills will continue forever after researchers crack his investment code

2. Index funds can provide simple, effective diversification

Buffett is a big fan of index funds, investment bundles that reflect a specific market index, such as the S&P 500: “In my view, for most people, the best thing is to own the S&P 500 SPX.
-4.04%
Index funds, ”Buffett said in May 2022.

Low-value index funds usually charge a lower fee than actively managed funds and allow you to buy a varied slice of a market or industry. In practical terms, it spreads your investment risk, which is especially important in times of turmoil.

In contrast, actively managing a financial portfolio through “stock picking” or buying individual stocks can be costly, time consuming and risky. And according to Kevin Chicks, a San Francisco-based financial adviser, it often doesn’t pay off: “Most professional money managers can’t consistently beat the market. They may have a good year, but 60 to 70% of fund managers will perform less in the stock market. “

The data prove that: S&P Dow Jones Indices reported that about 80% of the actively managed funds performed less than 1500 S&P composites in 2021. “Paying more for something that doesn’t perform well over time doesn’t add much to your portfolio,” says Gall.

When asked about the stock pick on April 30, Buffett said: “We [Buffett and Charlie Munger, Berkshire Hathaway vice chairman] There is little idea what the stock market will do when it opens on Monday. We never have. ” He continued: “I don’t think we’ve ever made a decision where either of us said or thought we should buy or sell based on what the market is going to do. Or, for that matter, what the economy is going to do. We don’t know. “

To get started with index funds, choose an indicator like S&P 500, Dow Jones Industrial Average DJIA,
-3.57%,
Nasdaq Composite Comp,
-4.73%
Or Wilshire 5000 and a fund that tracks that index. Many investors choose index funds based on their spending ratio, or your annual fee expressed as a percentage of your investment. Then when you are ready to buy, you can do so through an investment account such as a brokerage account or an IRA. Employer-sponsored retirement plans, such as 401 (k) s, may also offer access to index funds.

3. Price investing can be a difficult strategy

Buffett told Forbes Magazine in 1974, “You want to own a company because you want to own it, not because you want to grow the stock.”

Value investing means buying high-quality stocks, ideally at a reasonable price, and keeping them year after year.

There are also investments that are consistent with your values, which take into account your social, religious, environmental or ethical beliefs when you invest.

Buffett has done quite well for himself by following both strategies. At this year’s annual conference, for example, Buffett announced that Berkshire Hathaway had bought 15 million shares of gaming company Activision Blizzard. The acquisition is one of Buffett’s most recent examples of his strategy of selecting underestimated investments at an attractive price rather than picking stocks based on high growth potential.

In Berkshire Hathaway’s belief, Buffett prioritizes four key areas: insurance, Apple, AAPL,
-5.64%,
Railways (BNSF Railways) and power. In his 2021 letter to shareholders, Buffett described the railroad as “the number one artery of American trade” and “an essential asset for America and Berkshire.” Belief in the services that railways provide and their impact on the environment is central to Buffett’s investment. “If many essential commodities are transported by truck carrying BNSF, America’s carbon emissions will increase,” he wrote.

See: Warren Buffett and Berkshire Hathaway are once again outperforming the stock market. Apple is a big reason but these other 10 stocks have also helped

Even for those who have 100 or $ 1,000 to invest, investing based on your value can still be an important consideration. Cheeks help clients create a range of value-based choices when investing. “Let’s focus on what you need to do. And then let’s see how we can do it through a specific lens, like being influential or charitable, ”he said.

If you are interested in price investing, you need to research the low priced and neglected companies in today’s stock market – which, as has been the case recently, is easier when the market is largely down.

Learn more: How much should I invest? | How to invest: Ep. 1

For investing in line with your values, many brokers have screening tools that allow you to filter index funds or other investments based on environmental, social and governance (ESG) business practices.

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Aliza Durana writes for Nerdwallet. Email: [email protected]

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