Getting started in investing can seem like a daunting process. Even for experienced investors, the markets can be a confusing and complex thing to understand.
If you are buying single stocks, there are tens of thousands of equities to pick around the world. Even if you are only investing in funds, the number of investment funds available to invest in at any one point in time is enormous. So, what's the best way to start investing and go about learning the stock market?
Buffett's advice for investors
At the 2005 Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) annual meeting of shareholders, the Oracle of Omaha, Warren Buffett (Trades, Portfolio), explained how he first started in the investment business and the approach he used all those years ago to pick his first stocks.
Buffett explained that he first started building his knowledge of the stock market by going to his dad's office and looking through the "interesting books" on finance and investing. From here, he started to build his own investment library and knowledge of the market:
"The market was open on Saturdays in those days, so I could β for two hours β so I could go down on Saturday, and I saw all these interesting things going across the tape. And I just read a lot. I probably took every book in the Omaha Public Library, every book they had on investing β or the stock market β basically. I was very interested in the New York Stock Exchange. I thought maybe I'd want to become a specialist when I grew up and maybe I still will. But the β I took all the books out. I read them. And finally, when I was 11, I bought three shares of stock and I didn't know β I was fascinated by the subject."
He went on to add that when the family moved to Washington after his father was elected to congress, the library of books available to read became "even bigger." Buffett continued reading everything he could on finance and investing, and at the age of 19, he stumbled across a book that would change his life. As Buffett explained in 2005:
"Finally, I read [Benjamin] Graham's book when I was at the University of Nebraska, "The Intelligent Investor," when I was 19, and that just changed my whole framework...
The advice I would give is to read everything in sight."
A continuous process
This advice isn't just relevant for beginner investors. It is essential advice for any investor of any experience level.
The investment world is continually changing and developing. The only way we can keep on top of these developments is to continue to expand our knowledge and understanding of finance and financial markets.
Buffett is a perfect example of why it does not make any sense to rest on your laurels. Until a few years ago, the Oracle of Omaha didn't want to invest in tech stocks because he didn't understand the sector. However, as he continued to read and build his understanding of the world, this view changed, and he realized there were some great companies in the tech industry.
Berkshire's first significant adventure into tech, International Business Machines (IBM, Financial), wasn't particularly successful, but its second big bet, Apple (AAPL, Financial), has generated tens of billions of dollars in profits for Buffett and his investors. This wouldn't have been possible if the CEO of Berkshire didn't follow his own advice to continue learning and reading about developments in the world.
That's why even the most experienced investors need to remain humble and focus on education above all else. As an investor, you can never know enough about the market and different companies.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Berkshire Hathaway: A Premium Business Deserves a Premium Multiple
- Some Thoughts on the Complex Process of Valuation
- How Much Cash Does Berkshire Hathaway Really Have
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