3 Mistakes to Avoid Courtesy of Warren Buffett

“You don’t need to look at the prices of the stocks you own from week-to-week, or month-to-month, or even year-to-year.  If you own a cross-section of American businesses, and you don’t get excited (and buy) just at the very top, and if you buy in over time, you are going to do well.” – Warren Buffett

Most people like to follow Warren Buffett because he is one of the greatest investors and stock-pickers of all time. They love to click on the Top 10 Stocks We Think Warren Buffett Could be Buying stories on the web while completely ignoring the actual advice from the man himself that they can use to become better investors.

I don’t follow Buffett to get stock tips. At this point that’s not going to help me become a better investors because he has such a large capital base with billions and billions of dollars to put to work in the markets.

I have decidedly less capital to put to work, so we are playing in different leagues (I came up just short).

My favorite part about following Buffett is the fact that he breaks down the complexities of investing into simple terms that almost any investor should be able to understand.

He’s been willing to share his advice with the investing public for a very long time and yet the majority of investors still don’t heed his simple takeaways on the markets.

He talks frequently in his simple, almost folksy, lessons about having the correct temperament, minimizing errors, thinking long-term and staying away from the herd mentality.

This week the USA Today asked Buffett to share the three biggest mistakes that investors make. Ignore the Oracle at the risk of your own wealth:

1. Trying to time the market. “People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake,” says Buffett.

2. Trying to mimic high-frequency traders. Buying stock in a good business and hanging on for the long term, he says, is a better strategy than flipping stocks like a short-order cook flips pancakes.

“If they are trading actively, they are making a big mistake,” Buffett says.

3. Paying too much in fees and expenses. There’s no reason to pay an expensive management fee to invest in a mutual fund when super-low-cost index funds that mimic large indexes like the Standard & Poor’s 500-stock index are available, he says.

“If they are incurring large expenses in connection with their investing,” says Buffett, “they are making a big mistake.”

Short and sweet. Don’t time the market. Don’t try to be an active trader. Keep your costs low.

But where’s the hot stock tip?

Warren Buffett: Top 3 investing mistakes to avoid (USA Today)

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  1. Martin commented on Nov 16

    I learned those mistakes myself the hard way. 🙁
    But now I know and it was my tuition I guess.

    • Ben commented on Nov 17

      The best way to become a better invest is by learning what not to do. I’ve made plenty of these mistakes myself. I’ve heard before that it’s OK to be wrong, just not OK to stay wrong. I like the tuition metaphor. Every investor has paid that at one time or another.