Confused where the market is headed? Turn to Buffett wisdom

Guru, guide and god – these are the words the investing community uses to describe billionaire investor Warren Buffett.

Every single word from the ace investor is taken as prophetic and every action as a cue on investing.

When Buffett talked about aviation stocks in his letter to shareholders this past February, aviation suddenly became a sector of investor interest. Everyone wanted to know why he suddenly started betting on a sector that looked all doom and gloom till the previous day.

Buffett fans say his actions carry deeper messages, and his words are wisdom of life. We tried to decode some of them:

Mistakes are part of life, accept it
Whether it is you, me or Mr Buffett, anyone can make a mistake. The investment guru himself admitted this year that he was wrong to think International Business Machines Corp “would do better” when he amassed 81 million shares of the company six years ago. Berkshire recently sold about one-third of that holding even as it bought a large stake in Apple, which Buffett said is more of a “consumer” company that a technology company.

Keep learning
John Rooney, an American sportscaster once said, “The quickest way to become an old dog is to stop learning new tricks.” So, keep learning and always remain in the league. Even 86-year-old Warren Buffett and 93-year-old Charlie Munger say they both try to continue learning and that shows up in the investment decisions they make for Berkshire Hathaway. Munger says Berkshire’s purchase of 133 million Apple shares shows Buffett is learning because for decades the Oracle of Omaha had resisted investing in technology companies. Buffett says he came to realise that Apple behaves more like a consumer products company than a tech company. So he became comfortable in investing in it.

Get your financial plan and goals in place first
Your financial plan and goals are cornerstones of your financial success. Even before you set out to decide where to invest your money, you need to know what you want it to do for you. Put down on paper or work on an excel sheet, your financial plan with future cash flow requirements. If you cannot do this on your own, identify a professional financial planner who can do this for you. If this is not done properly, failure is assured.

Ability to accept changes
One should not be rigid with their decisions. At 86 years of age and with robust track record, Mr Buffet still believes the market is supreme and his views can change depending on how conditions change. For instance, Buffett has defended Berkshire’s foray into airlines, where it is a top investor in American Airlines Group, Delta Air Lines, Southwest Airlines and United Continental Holdings. “It’s a fiercely competitive industry. The question is if it’s a suicidally competitive industry. It has been operating at 80 per cent or better of capacity for some time... it’s fair to say they will operate at higher degrees of capacity over the next five to 10 years than historical rates. They actually at present are earning quite high returns on invested capital, I think higher than FedEx or UPS.”

Learn to say thank you
If someone does a great job for you or community, then you must be thankful to him or her. For instance, during Berkshire Hathaway’s annual shareholder bash in Omaha last month, Buffett thanked Jack Bogle, founder of Vanguard Group, for saving billions of dollars of investor money by creating index funds. In his address to the 53rd annual general meeting of Berkshire Hathaway, Buffett said index funds have bought down costs significantly for investors.

Keep morale of employees and managers high
For better productivity or results, you should not ignore praising your employees for good work. Buffett said Berkshire could have a new chief executive within 24 hours if he died or could not continue. He says he believes it works better to hold employees to a high standard and expect them to do the right thing instead of imposing extensive rules.

Invest for the long term
Buffett says investors will do fine if they hold good businesses and “never look at short-term market moves.”

Be optimistic and make money
Warren Buffett always says if you are optimistic, you will always make money. If you are associated with financial markets, buy assets which are growing, buy businesses which are cheap and those which are adding to productivity.