5 Investing Lessons From Warren Buffett

I won't lie. It was an emotional experience to hear that Warren Buffett plans to step down as CEO of Berkshire Hathaway. It truly marks the end of an era.

The man has been rocking the stock market for decades. According to a piece by CNN, Buffett created returns of 5,500,000% during his investment career. Given all that time and experience, there is some investment wisdom we could all stand to learn from the Oracle of Omaha. Here are five pieces of his advice.

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1. Invest in America

In a New York Times op-ed, Buffett wrote about investing in America. When you look at Berkshire's holdings, the vast majority of its stocks (as a percentage of total capital in play) are American companies. Despite some of the current woes over trade wars and high prices on consumers, America remains the largest economy in the world, and arguably the most innovative. Where better to invest your dollars?

2. "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."

This quote is incredibly meaningful, and makes perfect sense. Everyone wants that crystal ball telling them when to go to cash, and when to be heavily involved in stocks. In many ways, it comes down to seeing when the market is getting ahead of itself from a valuation standpoint.

That, of course, is an oversimplification of a very complex dynamic. However, when you watch Buffett, some of his biggest moves have happened when he swoops in when things are bad. He bought up stocks in the 2008 financial crisis, and is currently sitting on a massive pile of cash of nearly $350 billion, indicating that the company is prepared perhaps for an event in the future.

3. Buy wonderful companies at fair prices

He has largely attributed it to learning from longtime partner Charlie Munger, but Buffett advocates buying "wonderful companies at fair prices, rather than fair companies at wonderful prices." Sometimes, it's easy to get caught up in a stock that is trading below book value, but you also have to ask yourself why is it trading below book value.

Buffett made a huge bet on Apple that paid off handsomely, but it wasn't necessarily the cheapest stock. He saw the value in the power of its brand, and what it was doing with the utility of an iPhone.

4. Think of stocks as businesses

I remember watching Buffett on CNBC speaking to the point that investors would be much better off if they thought of stocks as businesses, rather than just a share price. This might be his most important point in his discussions of the stock market.

Oftentimes, this is especially true for traders. It's easy to get caught up in the price action of an investment. Walmart goes down 10%, so we buy. Walmart goes up 10%, so we sell. But why is the stock moving?

What we should be doing is studying what the business itself is doing, and deciding whether it will keep growing and producing earnings over time. We should be looking at what industry a business is in, and whether that industry stands to grow. Price volatility will always be there. It's what the business is doing that determines long-term trends at the end of the day.

5. To that end, play the long game

A tangent to this simple strategy is that you should only invest money that you don't need, and can sit on for a while. Buffett is notorious for holding stocks for long periods of time. He's owned Coca-Cola for decades.

The main argument for long-term investing is that it gives you a much better picture of how the share price is going to perform. Good stocks rise through time, even if they are erratic short term. Trying to gauge what a stock will do in two weeks, or even a few months, can become a fool's errand very quickly. One bad quarter can induce volatility. If you believe in Buffett's teachings, a good investor doesn't get emotional about short-term moves.

Looking ahead, we can only hope that Greg Abel, Buffett's announced successor as CEO, will be able to put all this wisdom to good use.

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David Butler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Walmart. The Motley Fool has a disclosure policy.