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Kolkata: Warren Buffett is considered by most no less than a living god in the world of investing. This nonagenarian investor has always preached the importance of long-term investing. Patience and the ability to rise above the short term turbulence were held by him almost as the preconditions of building long-term wealth in equity or equity-linked instruments.
Though he has retired from active investing, Buffet's principles are no less relevant today. In fact, the modern investor can have a look at his investment rules he followed in his long investment life. They have become more significant in the modern age, when the patience of investors is wearing thin and they keep checking returns of actively managed equity funds in every market condition and wish for a high rate of return.
Index funds track the index and is a type of passive mutual fund. They are not actively managed by any fund manager but as the name indicates, index funds track different indices and mirror the performance of the linked index. Buffet was almost an evangelist for index funds, which charge very low fees as opposed to the high fees of actively managed funds. Buffet used to invest a lot of money in S&P 500 index funds which had low costs built into them. In fact, there is a growing realisation among the analysts that it really becomes somewhat impossible for generate a high rate of returns year after year in any market condition.
“Only buy something you would be happy to hold if the market closed for the next 10 years” -- said Buffet. The words also mirrors his deep belief in investing for the long term. Let the market go up, down or sideways. Invest after careful selection and once you do it don't hurry to get out no matter what happens to the market. The upshot is simple -- investors should not switch funds quickly after a season or two of poor returns.
Are you one of those mutual fund investors who keep looking at the market a few times every day? Watching the market all the time is a strict "No No" says Buffet. If you keep the market under watch all the time, you can easily get emotional and decide to sell an investment which can give you return in the long term. Comparing NAV of mutual funds every day is strongly advised against. In fact, Buffet says SIPs should be put in the autopay mode. One should not consider pulling out an investment before at least five to seven years.
