Trustpilot

2 Investment Tips from Warren Buffet By Joshua Travers, Private Client Adviser

“I don’t know anybody who can time markets over the years, a lot of people think they can”  Warren Buffett – CNBC Interview – 27th February 2017

With an estimated net worth of over $87 Billion, Warren Buffett is widely regarded as one of the world’s most successful investors.

At first glance, timing the market may seem easy. Buy when prices are low and sell when they are at a high. If you carefully follow the market you should enjoy more growth than somebody who stays invested throughout.

Think again.

It has been shown on numerous occasions that time in the market, not timing, is the most influential factor when building wealth for the long term.

One of the reasons for this, is how important it is to be in the market during the periods of best performance and how the margin for error is slim.

There were 6,941 days between 1995 and 2015. The chart below shows the effect of missing the best 10, 30 & 50 days during this time period.

On a £10,000 investment, if you missed the 10 best performing days, it would leave you with approximately £17,000 less than those who remained invested for the whole 20 years.

What are the chances of you being able to call which 10 days will be the best performing out of the 6,941?

And if you missed the best 30 days, you would have lost money.

 

 

 

 

 

 

 

 

 

“The best thing with stocks actually is to buy them consistently over time”  Warren Buffett – CNBC Interview – 27th February 2017

The truth of the matter is that investment managers, analysts and even market gurus like Mr Buffett can not consistently call the market bottom. But don’t despair, there is a way to protect yourself in the long run from the effects of a downturn.

The technique is called Dollar-Cost Averaging (DCA) and it is one of the simplest and most useful investment techniques. DCA is simply putting a set amount of money each month in to a stock or mutual fund.

DCA is suitable for investors who would like to gradually phase in a lump sum and for those who would like to start investing small amounts on a regular basis.

When you invest a set amount each month, you buy fewer shares when the market is high and more shares when the market is low. DCA therefore lessens the risk of investing a large amount in a single investment at the wrong time.

As an example, if we look at a case where $1,000 per month is invested in two mutual funds shown below. Fund A shows steady growth at 2% per month whereas Fund B falls by over 30% in the first six months, recovering back to the initial level by month 12.

It may seem counter intuitive but the investor in Fund B will actually see a better return; in fact, as illustrated in the graph below, the return will be more than double of what was achieved by the investor in Fund A.

 

As a final thought, you may never reach the dizzy heights of $87 Billion, but learning these lessons from Mr Buffett could help you make the most of what you have.

Link to Warren’s interview where the quotes are taken from

https://www.cnbc.com/video/2017/02/27/buffett-dont-make-this-investment-mistake.html

 

View our Testimonials