I view Warren Buffett as one of the world's greatest investors because of his achievements, his willingness to help educate the world about investing, and his kind-hearted nature.
Buffett has built Berkshire Hathaway up to be worth more than US$700 billion, thanks to his investments.
Berkshire Hathaway is invested in, and owns, a variety of different businesses. Indeed, there are a number of investment lessons Buffett has shared that can be applied to almost any investment.
I'm going to tell you about three of my favourite Buffett teachings.
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Don't lose money
Warren Buffett once said, "The first rule of investing is don't lose money. The second rule of investing is don't forget the first rule."
Of course, Buffett himself has lost money, such as the Berkshire Hathaway investment in British supermarket giant Tesco. So, don't beat yourself up if one (or more) of your investments doesn't go well.
I think it's a great rule because the point of investing is to make money. We also don't need to aim for massive returns when we can allow the strength of compounding to do good things for our wealth.
I look for investment situations where there's a high chance I'm going to make a good return — and a low chance of it blowing up. One example is buying high-quality companies during a market dip. Another could be buying shares in a cyclical company when they're going through a low, such as ASX iron ore shares when the iron ore price falls below US$100 per tonne, or discretionary retailers during a recession.
Warren Buffett said he'd rather step over one-foot bars than try to jump over a seven-foot bar, which I think is a good way of explaining it.
Circle of competence
Investors can choose to invest in a huge variety of different sectors. Buffett is one of the most business-savvy people in the world, but he deliberately avoids investing in industries and businesses that he doesn't understand.
Staying within your 'circle of competence' is valuable because it means that you can better evaluate the business, opportunities, and risks. If we understand the situation, then we can know if developments are good or bad and whether a falling share price is a big opportunity or whether there's a genuine problem.
I don't necessarily need to know the intricacies of the property market to evaluate the strength of the long-term opportunity of REA Group Limited (ASX: REA). However, I don't know what the future demand or success of the newest drug treatment will look like, or how to evaluate the opportunity of a mining explorer that has just found a deposit.
Of course, some people are biotech or mining explorer experts, but that's not me.
Buy 'hamburgers' when they're on sale
I think the best time to invest in ASX shares is when the price is low. As Warren Buffett once said:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
Speaking for myself, I invested the most money of my investing life during March 2020 to September 2020, certainly much more than any other six-month period so far. This has paid off.
No one knows when the next bear market will occur but when it does, I'll be mentally ready to jump on the opportunities it brings rather than shying away. The ASX share market doesn't just crash for nothing so while there's a valid reason for market fear, I'll try to be optimistic about the future of my investments.
