One challenge faced by all investors sooner or later is learning to separate reality from myth, signal from noise. For me, consulting the thoughts and strategies of market masters such as Warren Buffett can be helpful in this regard. Here’s a small selection of how the Sage of Omaha’s incredible success shows why we all need to frequently question the things we hear. 

“The more stocks I own, the better”

Spreading my money around different shares sounds like plain common sense. After all, investing in just a few stocks, however carefully picked, opens me up to the threat of massive volatility and, perhaps, huge losses.

The truth, however, is a little more nuanced. Having too many investments is potentially as problematic as having too few. Why? The gains made by my winning picks will be diluted by the poorer performers and thus have less impact on my overall returns. Owning nothing but growth stocks when value stocks are in vogue is similarly not ideal.

Warren Buffett has long recognised the power that comes from running a concentrated portfolio of high-quality companies in different sectors. Investing heavily in one incredibly profitable beverage business (Coca-Cola), for example, has served him far better than investing in a number of average beverage businesses.

Clearly, the appropriate number of stocks for a person to hold will depend on many factors. There is no right number. However, the idea that ‘more is better’ should not be blindly accepted. 

“Only invest if you’re already rich”

The fact that Warren Buffett is one of the wealthiest individuals on the planet may be taken as a sign to non-investors that only the rich should get involved in the stock market. In fact, Buffett started from scratch, making his first investment at the age of 11.

Now, I sincerely doubt there are many 11-year-olds out there doing the same. Nonetheless, grasping the importance of getting started and cutting costs where possible are key to growing wealth. This applies regardless of a person’s age. It’s about making use of tax-efficient accounts, zero/low-commission online brokers and, if so inclined, cheap index-tracking funds.

One caveat to mention is that investing usually only makes sense when there’s a lack of debt (mortgage excluded). Having an emergency cash fund for life’s eventualities is also important.

“You can time the market”

It’s easy to study a share price graph and pick out what would have been the optimum moment to buy. For example, we now know that March 2020 was a wonderful time to go shopping in the market. 

The problem is that all of this is exceptionally easy to say in hindsight. When the chips are down and prices are tumbling, it takes guts to throw money into assets such as equities. To make matters worse, anyone attempting to ‘buy at the bottom’ perfectly soon faces another challenge: identifying exactly when to sell. 

As successful as he is, Warren Buffett doesn’t know what will happen next any more than I do. Instead, he recognises that a strategy of being “greedy when others are fearful” tends to work out well. This is assuming that the investor possesses sufficient patience to allow things to actually work out.

Holding the same stock for decades sounds unexciting, but it’s played a huge role in making Buffett the billionaire he now is.

The post 3 investment myths Warren Buffett has busted appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Investing basics may seem simple, but they are the foundation on which all successful investors base their decisions. Many of my best decisions were made when remembering these rules. And many of my biggest mistakes were made ignoring them.

No one’s making you swing

Warren Buffett once compared choosing investments to batting in a game of baseball, save for one key difference. There’s no rule that says you have to swing. This means I can take the time to really think over every opportunity that comes my way, and if I’m not 100% certain it’s a good bet, I don’t have to take it. This has meant I’ve missed some great investments, but there’s nothing wrong with that. There will always be more opportunities, more chances to swing. And when it comes to my hard-earned money, it’s better to play it safe.

Don’t be lazy. Do your research

It really doesn’t take much effort to learn a little about a company, and that research can be the difference between making a great investment and losing lots of money. Of course, I need to know what I’m looking for, so I ask myself:

• Does the company offer a product or a service?
• Is it expensive to run?
• Does it have a lot of competition and if so, does the company have an edge over similar companies?
• Does it have a lot of debt or large profit margins?

Most of these questions can be answered by looking at a company’s financial statements and by using a bit of common sense.

Don’t buy the news

It’s important to keep up with the news and know what’s going on in the wider world. The problem with following the news too closely is that it can cause us to invest reactively rather than proactively, leaving us always one step behind the market.

One of the biggest mistakes I ever made was buying shares in a company that had just made the news because the stock price had gone through the roof. Shortly after, the price crashed. Because I was a novice investor, I panicked and sold. The entire process just cost me money and caused me stress.

Now I do my research first and never buy a company I hear about in the news.

Investing is a marathon, not a sprint

Every single person on the planet is susceptible to the influence of two key emotions. Fear and greed.

It’s fear that makes us sell our shares when the market goes down, and greed that pushes us to buy when prices are at all-time highs. If I don’t keep these emotions in check, I might as well just burn my money.

The trick is to remember that investing is not about making money today. It’s about building wealth over the long term.

The best thing I ever did was buy shares and forget about them. Prices will fluctuate up and down in completely unpredictable ways for years, and I realised that if I spent my days watching them, I would only lose the strength of my convictions.

All investing brings with it risks but our job as investors is to manage those risks and try to stack the odds in our favour.

The post Investing basics: 3 rules that helped me become a better investor appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.