- 1. Don’t put all your eggs in a basket.
- 2. Never depend on a single income. Make an investment to create a second source.
- 3. We don’t have to be smarter than the rest. We have to be more disciplined than the rest.
- 4. Never invest in a business you cannot understand.
- 5. Someone is sitting in the shade of a tree today because someone planted a tree a long time ago.
1. Don’t put all your eggs in a basket.
The investment quote signifies diversification. In simple terms, it means one has to spread their risk. There is risk involved in every investment. The risk only amplifies if all the money is put in one type of investment. All advisors strongly recommend to spread investments across asset classes. And some also emphasize on diversifying within an asset class.
Even if one is investing a little amount, diversify across various asset classes. During falling markets, even if an asset class fails to perform, the other will nullify its effect ensuring the portfolio is on the green side.
2. Never depend on a single income. Make an investment to create a second source.
Irrespective of what position you are in or how much you are earning it is always good to have a second source of income. Though your primary source of income is the bread earner, secondary income will come handy in unforeseen events. For example, in case of recession, your second source of income can be a supplement to your primary income.
Therefore, the quote emphasis on having an investment plan that will help in generating income for you. Start investing in such a way that your investments will give you significant returns in the future.
3. We don’t have to be smarter than the rest. We have to be more disciplined than the rest.
In simple terms, the investment quote means being consistent in life is much more important than perfection. One can master any skill by practising it regularly. Warren Buffet believes that investing regularly is more important than investing all at once. People believe higher the investment, more significant will be the returns. But they tend to forget that the losses can be substantial too.
Investing regularly in an asset will reduce the average cost and help in accumulating more units. During a bear phase, the returns of these investments will be least affected as the average cost for the investor is lower.
In mutual funds, SIP investing helps increase financial discipline and also reduce the average cost of investing.
4. Never invest in a business you cannot understand.
Crux of the investment quote is risk of investing in something one doesn’t have knowledge about is the biggest risk one can take. Warren Buffet strongly believes that learning is a continuous process. Having an understanding of something will help us make better decisions. Also, the risk of making uncertain decisions is reduced.
Never put money into a business that one does not understand. If one thinks the business of a company is too complicated to understand, try to hold the thought of investing in it. They have to always take time to understand the business, its management style, competitive advantage over its peers, and its management team before making a decision to invest.
5. Someone is sitting in the shade of a tree today because someone planted a tree a long time ago.
This investment quote by Warren Buffet can be used to inspire people from all walks of life. Be patient and let time do its magic is the crux of the investment quote. In investing, the quote means to invest in a better future. Also, long term investing will help you reap significant benefits. All one has to do is invest in the right business and be patient enough to let the investment grow.