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3 Pearls of Wisdom from Warren Buffett to Make You a Better Investor

It’s been quite the run over the past six years for the Straits Times Index (SGX: ^STI). Take a look at the chart below which shows how the SPDR STI ETF (SGX: ES3) – a proxy for the Straits Times Index – has changed since January 2009.

2015-05-19 STI ETF Chart

Source: Google Finance

As you can see, the SPDR STI ETF – and by extension – the Straits Times Index has nearly doubled since the start of 2009.

That alone could be a source of worry for individual investors. To add to this worry are a whole host of macro factors to fret about: Rising interest rates; inflation (or the lack of it); wild oil prices; and China’s slowdown in growth. The list can go on.

Thankfully, Warren Buffett had been sharing his thoughts on how we might deal with such matters earlier this month during the Berkshire Hathaway Inc Annual General Meeting. He had also shared many more useful investing insights in the meeting and I’ve picked out a few of my favourites. Here they are.

On how to approach macro worries

“To my memory, I can’t recall us ever making or turning down an acquisition based on a macro factor. We focus on what’s likely to be the average profit, the moat. Any company that has an economist has one employee too many.”

With fair apologies to economists aside, Buffett, who’s the Chairman of Berkshire, highlighted his focus on the business behind the ticker in this quote.

Buffett reckons that he would not back away from an acquisition due to macro factors alone. For him, the existence or lack thereof of a strong economic moat around a profitable company is a far more important consideration than what is happening in the economy.

On how to think about share prices

“Nobody buys a farm to make a lot of money next week or next month. They buy it make money over the long term. They don’t get a quote every day. That’s a better way to look at stocks.”

In comparing farms to stocks, Buffett highlighted the absurd amount of focus that market participants have on share prices – that’s unfortunate because that focus on the price tells us very little about the intrinsic value of a company.

He also questioned the need to have a quote for your stocks on a daily basis. For Buffett, he buys a company with the intention to hold for years, if not decades. As such, daily stock quotes play almost no role in his buying consideration.

On keeping your discipline

“People looking at our past could say we missed some big opportunities if we had borrowed a little money. We would be much bigger, but it’s crazy to sweat at night … over financial things.”

Much of the quote above was started by Buffett’s right hand man, Charlie Munger (also Vice-Chairman of Berkshire Hathaway), but the snippet was summed up by Buffett. The quote suggests that Buffett would not be willing to invest in such a way that would cause him to be too worried to sleep at night.

It may seem like a simple rule, but emotions play a huge part in investing. As such, we may want to keep this in mind when we decide how much money we are willing to commit to an investment. This question may keep our emotions in check and in turn, help us make better investing decisions over time.

A Fool’s take

I hope that the three insightful snippets above from Buffett can help us to see things the way Buffett would and in the process, make us all better investors. Stay hungry and stay Foolish!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Berkshire Hathaway Inc.