PART 2 – The Relationship Between Long-Term Investing and Warren Buffett
Introduction
I usually invest 90% of my money for the long term and 10% for the short term. The 10% helps me stay engaged with the market and I enjoy the excitement 🙂 . I also use this 10% for riskier investments. In my experience, beginners often start with a 90/10 split, but Time that brings experience teaches them a lot.
Short-term vs. long-term investing
Most investors focus on short-term performance, which can create opportunities for profit over longer periods. This is because investors make investment decisions based on short-term price fluctuations instead of looking at the market’s long-term trends.
For example, if a stock has been rising for the past three months, investors are more likely to buy it. This increases demand and drives up the price. However, if the stock is losing value over the long term, this price increase will not be sustainable.
Even Warren Buffett has said that he would rather earn 15% with volatility than 12% with smoothness. This suggests that he is willing to take on more risk to achieve higher returns. However, Buffett believes that this risk can be reduced by carefully researching stocks and taking a long-term view.
Benefits of long-term investing
Buffett’s strategy can be beneficial for many investors. It can help investors avoid being swayed by short-term fluctuations and achieve higher returns by taking a long-term view.
The benefits of long-term investing include:
- Potential for higher returns: Long-term investing offers the potential for higher returns.
- Reduced risk: Long-term investing reduces risk from short-term fluctuations.
- Tax advantages: Long-term investing can defer the taxation of gains.
Drawbacks of long-term investing
However, there are some drawbacks to long-term investing:
- Requires more patience: Long-term investing requires more patience.
- Involves more risk: Long-term investing involves more risk.
- Requires more research: Long-term investing requires more research.
Tips for investors
Investors should consider the following tips:
- Take a long-term view.
- Focus on fundamentals.
- Do your research.
- Be patient.
- Understand the difference between “Price” and “Value”.
- Think of every stock you own as a business partnership.
Conclusion
Long-term investing can be a successful strategy for many investors. By following these tips, investors can increase their chances of success.
Warren Buffett famously said, “Nobody wants to get rich slowly.” This is because the easy way out is always tempting, and we tend to see the grass as greener on the other side.
