The best advice Warren Buffett can offer to young people who want to invest is to learn accounting.
Furthermore, he warns investors against obsessing over stock price charts and urges them to focus on buying good businesses instead.
1. Learn Accounting - the Language of Business
"You've got to understand accounting. You've got to. That's got to be like a language to you," Buffett told Yahoo Finance's Andy Serwer in an interview on March 10.
The 89-year-old billionaire CEO of Berkshire Hathaway (BRK-A, BRK-B), whose childhood consisted of running a paper route and selling packs of gum and Coca-Cola door-to-door among other entrepreneurial pursuits only to buy his first stock at age 11, taught himself the fundamentals of accounting.
"You have to know what you're reading,” he added regarding accounting. “Some people have more aptitude for that than others, but that's one thing I learned by myself. Now, I took courses afterwards, for example. But I learned it myself, and largely. So, you have to do that."
2. Buying Good Businesses
According to Buffett, investors should also have an "attitude that you're buying part of a business, and not that you're buying something that wiggles around on a chart, or that has resistance zones, or 200-day moving averages, or that you buy puts or calls on, or anything like that."
Buffett is referring to technical analysis, or the study of how a stock’s price moves over various periods of time.
"You're buying part of a business,” he added. “If you buy intelligently into a business, you're going to make money.And then you have to buy something that, in my view, which you'd do if you're buying a business, that you're not going to get a quote on for five years, that they're going to close the stock exchange tomorrow for five years, and that you'll be happy owning it as a business."
For example, he pointed to Coca-Cola, a company that he's held stock in for more than three decades while remaining a faithful consumer of its products.
"If you owned Coca-Cola, it didn't make any difference in 1920 when it went public. The important thing was what it was doing with customers,” he said. “You probably would have been better off if there wasn't any market in it for 30 or 40 years, because then you wouldn't have gotten tempted to sell it. And you just watch the business, and you'd watch it grow, and you'd feel happy."
In Berkshire Hathaway's 1988 annual letter, Buffett said he expected to hold Coca-Cola "for a long time." True to his investment philosophy, he also described the investment as owning a portion of an "outstanding" business with "outstanding" management.
"[Our] favorite holding period is forever," he wrote in the 1988 letter. "We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds."
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