I’m attending the annual shareholder meeting of Warren Buffett. That makes this a great time to pass along some investment wisdom from The Oracle of Omaha. Here are four of my top lessons from reading over 5,000 pages of Buffett wisdom, writes Pieter Slegers, editor of Compounding Quality.
#1. The longer you invest, the better. Warren Buffett is worth over $150 billion today. Over 95% (!) of this wealth was created after his 65th birthday. The power of compounding is beautiful.
#2. Invest in boring companies. Boring companies are usually great investments. You should invest in what you understand. If you don’t understand what you buy, you will not be able to make good and rational investment decisions.
Good investing is like watching paint dry. An example? If you invested $1,000 in Coca-Cola Co. (KO) in 1989 and reinvested all dividends, you would collect over $56,000 in annual dividends. That’s 56 times your initial investment.
3. Invest in companies with great management. The incentives of management and shareholders should be aligned. Invest in companies where insiders own a large percentage of the stock. Companies with skin in the game tend to outperform:
4. Buy quality stocks. In the long term, quality always wins. Stock prices follow the evolution of the intrinsic value. As a result, you should invest in great companies that can keep growing their intrinsic value.
What should you look for? Companies with a healthy balance sheet and high margins that can grow their earnings attractively.
