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Warren Buffett has spent over 70 years watching investors make the exact same mistakes over and over again.
Today we’ll look at Buffett’s 7 Deadly Sins of Investing.
And more importantly, learn how to avoid them!
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1. Treating the Stock Market Like a Casino
When markets get greedy, people start betting on momentum and stock prices.
They forget that a share of stock is partial ownership of a real business with real products and real cash moving in and out the door.
During the height of the dot-com bubble in the late 1990s, investors mocked Buffett for missing out on the ‘easy money’ in tech stocks.
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But when the bubble burst, those ‘innovative’ companies crashed or went bankrupt.
Meanwhile, Buffett was collecting cash flows from boring, real-world businesses like See’s Candies and Coca-Cola.
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“Games are won by players who focus on the playing field—not by those looking at the scoreboard.” — Warren Buffett
2. “Sucking Your Thumb”
Buffett calls this the sin of omission.
You find a wonderful business, but you hesitate.
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The hardest part is that it’s easy to convince yourself that you’re being disciplined.
You’re waiting for a better price
You want to wait a few more days to see how the bad news develops
You need to read a few more earnings reports
Then the buying window closes.
You do need to be patient, and you do need to do your homework, but the best times to buy great businesses are usually the least comfortable.
If you’re confident in your research and the valuation makes sense, you have to pull the trigger.
During the 2018 Annual Meeting, Buffett talked about admiring Amazon for many years.
“Obviously, I should have bought it a long time ago.”
He said that he knew the business could be extraordinary, but he was too hesitant to take the risk.
We don't know when Buffett started looking at Amazon, but over the last 10 years, it’s returned more than 600%.