Being a new investor in ASX shares, or any kind of shares for that matter, is a daunting position to be in. Investing requires a lot of dedication, a willingness to learn and a strong emotional temperament. It's also a process that could invite a lot of unsolicited advice.
This can be confusing for a new investor, so today, let's talk about some advice from one of the greatest investors in the world that any beginner can take straight to the bank.
4 Warren Buffett tips for buying your first ASX shares
Remember the basics
All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.
This short quote sums up the essentials of stock market investing in one sentence. The best thing you can do as a beginner stock picker is find a high-quality company that you know inside out. You can then work out how profitable it is and what kind of price you might want to pay for it.
If a company produces goods or services that people love and has done so for a long time, chances are it will prove to be a good investment.
Think about what you spend money on
Why not invest your assets in the companies you really like? As Mae West said, 'Too much of a good thing can be wonderful.'
Some of Warren Buffett's most successful investments through his company Berkshire Hathaway have grown from his personal love affairs with their products. Buffett is a famous lover of Coca-Cola. By some accounts, he waited decades to buy shares of Coke for the right price.
That finally came in the late 1980s, and Buffett has owned Coca-Cola shares ever since. Today, he holds that same position and receives a 56% yield in dividends every year from his original investment.
So if you love using Apple products, admire Woolworths Group Ltd (ASX: WOW)'s business model, enjoy shopping at JB Hi-Fi Ltd (ASX: JBH) or can't stay off Amazon.com, then use that as a starting place for finding your first share to invest in.
Buffett: Check your emotions at the door
Remember that the stock market is a manic depressive.
This quote sums up the stock market rather pithily. As a new investor, you must always remember that the share market is an irrational place, often driven by fear and greed. If you yourself get caught up in one of these emotions, it will almost always end badly.
Too many new investors get scared when their small share portfolio loses a lot of value, say during a market crash. These events can be terrifying, and it's never fun to see the value of your hard-earned capital drop outside of your control. But investors have to stay strong and not give in to these kinds of feelings.
As Buffett also once said, "The market is there to serve, not inform". So remember to only sell your investments for a very good reason. Just because the markets are in a bad mood and are misquoting your favourite company is not a good reason to sell.
Keep it simple
You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
Warren Buffett's reluctance to invest outside his circle of competence is legendary. He famously missed several big opportunities, shunning investing in Alphabet's Google or Amazon for decades. He also only bought into his current largest holding, Apple, in 2016. But that hasn't stopped him from generating healthy returns in recent years for shareholders.
Becoming an investor doesn't mean you have to be an expert in uranium shares, artificial intelligence (AI) companies, mining stocks or any other kind of investment. You can start small with things that are easy to understand and go from there. So don't get caught up in any of the crazes that you'll always see on the markets, and keep it simple.
