The Essays of Warren Buffett

Free Advice From a Billionaire

As the chairman of Berkshire Hathaway, Warren Buffett has amassed billions of dollars in wealth. An outspoken critic of conventional wisdom about investing, Buffett has developed his own investment philosophy. Here are two top insights from THE ESSAYS OF WARREN BUFFETT.

Key Insight 1: Stocks should be purchased with the intention to hold them indefinitely.

Investors should not be influenced by market trends, which have a contagious quality. Any investment should be made with the intention to hold it long term. The investor’s expectation should be that the stock’s price will get higher over time. Investors should take a special interest in companies’ activities and feel optimistic about the progress of the companies in which they are invested, rather than looking for market hiccups to exploit.

Key Insight 2: Investors shouldn’t waste time analyzing the market.

A lot of investors spend mental energy analyzing the stock market and predicting what twists and turns the future holds. This is not an effective use of time. Fluctuations in the market are driven by emotion, not logic, so volatility is unpredictable. Instead of pondering what the market might do, it is better to understand the market as it is, as a snapshot in time. On a day-to-day basis, the market offers opportunities that can be ignored or leveraged. A company’s value isn’t tied to fluctuations of the market, but to intrinsic value that is stable. A company’s valuation should therefore be calculated independently of its market value.

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