Warren Buffett with some trading education

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?

And whatever you do, always leave room for dessert