Here's a list of priceless lessons that one can learn from Warren Buffett. Every investor in stocks would do well to understand them and apply them.
1. Though there are good and bad companies, there is no such thing as good stock; there are only good stock prices, which come and go.
2. Stocks do well or poorly in future because the businesses behind them do well or poorly - nothing more, nothing less.
3. Market timing is a practical and emotional impossibility. Speculation may work once or twice but in the long run it generally leads to losses. Since you cannot predict the behavior of the markets, you must learn to predict and control your behavior.
4. An investor must guard himself against unjustified market fluctuations. He would, therefore, be spared of the mental anguish caused by other persons' mistakes of judgment if there were no daily market quotations available. Having built a portfolio, be patient - for years. Don't look at the stock ticker every day.
5. Risk is not in the stocks, it is in you. Risk is brewed from equal doses of Probabilities (realistically assess the probability of being right) and Consequences (how will you react to consequences of being wrong). In making decisions under uncertainty, consequences must dominate probabilities.
6. Asset allocation is not dependent on age, but on one's financial knowledge, experience and temperament. However, typically the asset allocation may vary between 75:25 and 25:75 with a general mean of 50:50. When markets are attractively valued, stocks should be increased and when they become overvalued, stocks should be decreased.
7. Stocks are highly volatile in the short run. Therefore an all-stocks portfolio is not recommended. If one is dependent on ones portfolio for regular income, one should guard against the unexpected and invest a suitable portion in bonds.
8. One has to have considerable will power to avoid getting into the bull market and getting out in the bear market.
9. An average individual who put his money in mutual funds has fared better than an average person who invested directly in shares. It is normally prudent to choose funds that have done comparatively better in the past 3-7 years.
10. Be wary of any advice. Use your judgment.
11. In the end what matters isn't crossing the finishing line before others, but making sure that you do cross it.
12. The only indisputable truth that the past teaches us is that the future will always surprise us - always!
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