“One investor’s two rules of investing: 1. Never Lose Money 2. Never forget rule No. 1.” – Warren Buffett: American Investor
Warren Buffet is known as the “Oracle of Omaha” because he is an investment guru, and one of the richest and most respected businessmen in the world. According to Biography.com, Buffet “demonstrated a knack for financial and business matters early in his childhood…[he] was a mathematical prodigy who could add large columns of numbers in his head, a talent he occasionally demonstrated in his later years.” He made his first investment at 11 years old. It turned out that this investment was just the first step in a long and fruitful career as a financial market investor. As a result, he is now seen as the most influential businessman alive today.
What lessons can we learn from Buffet’s illustrious career?
In my opinion, possibly the most valuable lesson that we can learn is patience. From his earliest investments, Warren Buffet showed a canny ability to be both tenacious and patient at the same time. He did not sell shares or financial market investments at the first sign of trouble. In other words, once he had purchased stock in a company and the markets suddenly fell, he waited for this downward trend to reverse and turn upwards again.
Reducing risk and increasing wealth
Our global economy is affected by the volatile geopolitical events currently taking place worldwide. The Syrian civil war is currently known as the deadliest conflict in the 21st century and it has not yet ended. The armed conflict in Eastern Ukraine keeps on flaring up. As of today, 21 February 2017, a ceasefire has been declared and seems to be holding; however, no one knows how long this ceasefire will last.
Brexit as well as Donald Trump’s machinations has heralded a worldwide rise in nationalism. It would seem as though Germany, France, and The Netherlands could soon follow in Britain’s and the USA’s footsteps. One of the biggest global concerns is how to deal with the hundreds of thousands of migrants that are streaming from countries such as Syria, Lebanon, South Sudan, Somalia and other war-torn countries.
The high percentage of fake news and alternative facts that are predominantly spread via social media is a cause for concern because it seems to be playing a significant role in the political and economic decisions of the common man.
Therefore, in spite of the current geopolitical and socio-economic conditions, how do you implement Buffet’s lessons in patience to increase your the size of your investment portfolio? In answer to this question, here are a few tips to help you stay positive and patient in tough times:
Research your potential trades before you place them
This tip is probably one of the most critical aspect of any attempt at placing successful trades. It is important to study the historical price movement trends of any underlying asset you are interested in, read the financial reports prepared by the asset’s auditors, and have a look at the market trends of the entire sector that the share belongs to. As a result, you should gain a clear understanding of which way the asset’s price will move.
Decide on a strategy and stick to it
It does not matter whether you choose to apply a long-, short- or medium-term strategy. It’s important that you trust yourself and stick to your decisions. For example, if you decide on a long-term strategy when placing a trade, and the market price drops without warning. You will lose your investment if you panic and change your strategy to a short-term one.
The current market volatility can play a large role in determining which strategy you should implement. In my experience, it is better to implement a short-term trading strategy if the global financial markets are volatile with wide swings occurring during each trading session. The other option is to take a long-term position, irrespective of the current market conditions, based on the supposition that the underlying asset’s price will increase in the long-term.
Investment small amounts
If the market conditions are as volatile and unstable as they currently are, and you are trading on indices, options, or Forex, it is a good idea to invest small amounts utilizing a short-term strategy. Consequently, should the price of your underlying asset move in the opposite way to what you have determined it should move, you will not lose large chunks of your investment.
These are just a few tips to help you trade successfully in order to increase the value of your initial investments and reduce the high levels of risk involved. In closing, in spite of the current market instability, I believe that it is possible to reduce your risk levels while trading on the global financial markets.