If you're new to investing, well, firstly, congratulations. Starting your ASX share investing journey is one of the biggest favours you can do for your future self. The power of the share market to generate compounding wealth is almost unrivalled in the financial world.
But investing in ASX 200 shares can be a daunting challenge. There's a lot of jargon to get your head around, not to mention the brokerage process. And then there's the issue of actually deciding which of the hundreds of shares out there to invest in.
One of the best ways of overcoming these hurdles is, in my view, listening to the advice that experts can give out. And there is no one more expert in the world of investing than the legendary Warren Buffett.
Buffett is one of the more unique financial wizzes out there that has a genuine passion for educating other investors without lining his own pockets in the process. So his advice on investing is as good as gold.
As such, let's talk about four pieces of wisdom that could be invaluable to a new ASX investor today.
Some Buffett wisdom for a new ASX share investor
Spend less than you earn
Before you can even think about investing in ASX shares, you need to make sure you have your own financial house in order. There's no point in developing cash into shares if you have a 22% credit card loan to pay off first. Just a couple of weeks ago, Buffett said the following during the 2023 annual shareholders meeting of Berkshire Hathaway:
You should spend a little bit less than you earn. And you can spend a little bit more than you earn. [But] then you've got debt and the chances are you'll never get out of debt… I'll make an exception in terms of a mortgage on your house.
Buffett: Only invest in what you understand
Often, the hottest stocks in the market are new, exciting companies that are on the cutting edge of their fields. Over the past few years, we have seen investors flock to lithium shares, battery metals companies, artificial intelligence shares, cannabis companies and other future-facing trends. But Buffett has some simple, yet pertinent advice:
The difference between successful people and really successful people is that really successful people say no to almost everything… Never invest in a business you cannot understand.
I'd wager that most investors don't really have a working knowledge of the companies they put money in. So unless you're an expert in lithium markets and battery technology, or artificial intelligence, stay away from these shares.
Buffett: Keep it simple
Investing is often thought of as a complicated business. But it doesn't have to be. At its core, you are simply buying a share of ownership in a business. You don't need to do tricky things to be successful at investing. In fact, some of Buffett's best investments have been in the simplest companies – Coca-Cola Company is a good example. If you buy shares of a good business at a good price, you will probably do well over time. This is one of Buffett's core tents, exemplified by the following quote:
It is not necessary to do extraordinary things to get extraordinary results… I don't try to jump over 7-foot bars; I look around for 1-foot bars that I can step over.
So again, you don't need to look to the most exciting companies on the share market to make money. You just need to find companies that sell products and services that customers love.
Don't follow the crowd
Most of the mistakes that I see new investors make involve following the crowd. This is a hard one to beat because it is part of human nature. If you buy a share and its drops 10% in the following week, you will instinctively think you've made a mistake, that you've missed something obvious that everyone else can see and that you should sell before you lose any more money.
However, this is precisely why many investors lose money, especially when they are starting out. Buffett has made his billions from going against the crowd, and 'being greedy when others are fearful'. Most of his major share purchases were made when investors were panicking and selling out of what were fundamentally sound companies.
Here's one last piece of Buffett wisdom that explains this approach:
The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.
So you must never, ever make an investment decision based on what others are doing.
Foolish takeaway
So there are four takeaways from Warren Buffett's success that any investor should consider before investing in ASX shares. If you follow these guidelines, there is nothing stopping you from building a successful investing practice that could one day get you to a million-dollar portfolio.
