Warren Buffett’s 5 tips for success

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CNN’s Fortune has some highlights of Buffett’ annual letter to shareholders and Business Insider has picked out his five fundamentals for investing.

  1. You don’t need to be an expert in order to achieve satisfactory investment returns
  2. Focus on the future productivity of the asset you are considering
  3. If you instead focus on the prospective price change of a contemplated purchase, you are speculating
  4. Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard
  5. Forming macro opinions or listening to the macro or market predictions of others is a waste of time

I can pretty much agree with all of that except number 5. Depending on who you are listening to of course, it can either help, add or reinforce your ideas as well as maybe give you points you hadn’t thought of. In trading the final decision rests with the individual but it is very important to listen to arguments for both sides of a trade. If you only listen to one side and blank out all the rest you risk being blinkered to any potential pitfalls to your strategy.

As an example, take my Aussi longs which went offside by some margin. I had my strategy but all the while I kept focussing on what could go wrong with the trade not what could go right. Being able to see both sides, even though it may go against you, helps you plan and potentially reduce losses. My saying of “plan for the worst and let the rest take care of itself” is certainly something that’s served me well over the years.

So what are your personal trading guidelines and philosophies for navigating the trading minefield and do you agree or disagree with Mr Buffett?

Warren Buffett

And whatever you do, always leave room for dessert

Author: Ryan Littlestone

Ryan Littlestone has been working in financial markets for more than 20 years. Wide-eyed, he stepped out of Bank station in London to join LME founding member Rudolf Wolff where he worked his way to the main order desk and brokered customer orders to the LME floor and across virtually every global market. An opportunity to help set up and run a new LIFFE floor operation saw him catch the trading bug and it wasn’t long before the pull of the pits was too great to refuse. He became a ‘local’ and has been trading his own account for more than 11 years.

10 Comments

  1. Listen to the market and watch how it moves. For example aussie, many times it fell below 0.90 but in the end pop back up above 0.90. Recent data relating to aussie hasn’t been much supportive but it still won’t go down. Time to flip to the long side. Get ready to sell again in May.

  2. Rule #1: Do not listen to Warren Buffet.

  3. LOL apparently it’s opinion time for the benighted and clueless! (i’m referring to myself, of course ;)) so…. 100% agree with mr buffet, especially #5. mastering #5 is akin to trying to master not 3D chess, but 10D chess! it seems only geniuses like rogers, soros, paulson, etc… can do it, so i gave up long time ago. so instead, i rely on pure statistical analysis applied to TA and it works just fine on short TFs. but it feels more like 1 bread crumb at a time kinda approach.

  4. “It’s not,my job to break or be the resistance”

  5. I would agree with the general gist of Buffett’s focus on value rather than chasing whatever price has already done. He is a long term value investment specialist in stocks and income producing assets however, not so much currencies. The macro picture is more important to a currency’s value than land which yields agricultural products.

    In general, I tend to analyze underlying fundamental value of currencies more than the typical trader probably does. Most of my short term active trading is within the context of longer term fundamentals. I’ve found that the best technical signals tend to occur when they line up with my fundamental analysis. My entries are based on obtaining the best price possible (value) rather than chasing around exchange rates after moves are mature (momentum). The absolute best trades tend to be emotionally uncomfortable initially but have a “margin of safety” as Buffett would say by entering at a good price.

  6. I read this in the footer of some guys forum post. It has become my new mantra.

    I made all my money closing too early.

  7. @Andrew .which supports something very valuable taught to me in my early interbank days ” always leave something in the price for someone else”. ie.( for those who need further explanation) don’t expect to trade at the extremes aka “don’t be a dick for a tick”

  8. Andrew and Mike — Preach it! I had three accounts during college that all went kaboom because of my deep-seated arrogance and greed. Thankfully I grew up some and am happy trying to carve out chunks of bigger moves here and there. Its safer, less stressful, and safer (again).

    Cheers.

  9. @Mike…Gold!

    to add….

    If in doubt, close it out.

  10. If I take the advice given to me in the above article, I will begin the process of becoming educated in Forex trading. Thanks!

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