A:

Warren Buffett's first-ever stock purchase illustrates two very important principles of successful investing strategies: patience and the importance of timing,

At age of 11, Warren Buffett went into the stock trading business with his sister, Doris, buying six shares of Cities Service, an oil service company, at $38 a share. Buffett had identified Cities as an undervalued stock and was confident of making a nice profit for himself and his sister. Unfortunately, the stock lost almost a third of its value within just a few weeks of Buffet purchasing it.

Despite his sister haranguing him continually about their dwindling fortune, Warren held onto the stock until it rebounded to $40 a share, when he closed the trade for a $2 per share profit. He then had the unpleasant experience of watching the stock rise to over $200 a share without him.

Buffett's experience is a good example of the importance of timing in investments. Another legendary stock trader, Jesse Livermore, stressed the point that it is nearly as important for an investor to be right in his timing as it is for him to be correct in his directional forecast.

A stock may indeed be going to advance from $50 to $100 a share, but time and again investors have lost money buying it while it was first dipping down to $20 a share, only to then, like Buffett, watch it finally take off without them. Successful investing requires that traders be correct in their overall forecast for a stock and that they enter the market at the right time to realize a profit. Smart investors wait for market action to confirm their investment hypothesis before entering a position.

Patience is indeed a virtue for investors. Buffett exercised patience well in waiting for the market to come back in his favor, but he failed to be patient enough to take full advantage of the stock's profit potential. Having successfully weathered the storm, he failed to observe the adage, "Let profits run." Still, he did make a profit on his very first stock trade.

RELATED FAQS
  1. How Warren Buffett chooses the stocks he buys

    Investors have long praised Warren Buffett’s ability to pick great companies to invest in. Here are the key considerations ... Read Answer >>
  2. Why does Warren Buffett largely avoid investing in the technology sector?

    Learn about why Warren Buffett has traditionally avoided investing in technology companies. Read about his value investing ... Read Answer >>
  3. Why did Warren Buffett invest heavily in Coca-Cola (KO) in the late 1980s?

    Discover why Warren Buffett found Coca-Cola an attractive investment in 1987. One criteria of a Buffett stock pick is a moat ... Read Answer >>
  4. What is Warren Buffett's annual salary at Berkshire Hathaway?

    Learn more about how much Warren Buffett receives in salary and how he continues to stay involved with his company and his ... Read Answer >>
  5. How did Warren Buffett get started in business?

    Warren Buffett may have been born with business in his blood, but it was a brush with Benjamin Graham that put him on his ... Read Answer >>
  6. What investors come close to challenging Warren Buffett as the greatest investor ...

    Discover two legendary investors who not only challenge but perhaps exceed Warren Buffett in terms of their talent and achievements ... Read Answer >>
Related Articles
  1. Small Business

    Questions For Warren Buffett

    What would you ask this legendary investor, especially if you were told you could only ask five questions?
  2. Managing Wealth

    Buffett's Early Days as a Value Investor

    Warren Buffett has been honing his investing process for years.
  3. Investing

    Warren Buffett's Copycats

    The "Oracle of Omaha" is one of the most successful investors of all time. No wonder so many investors are mimicking his investments. Find out who Buffett's imitators are and how they're doing. ...
  4. Insights

    4 Reasons Buffett's Portfolio Is Irrelevant to Today's Investors (AXP, KO)

    Find out why investors should not try to emulate Warren Buffett's stock portfolio and why they could not achieve his same level of success.
  5. Investing

    Buffett on Stocks and the FBI (IBM,KO,DOW,AAPL)

    Investment legend Warren Buffett was interviewed by CNBC's Squawk Box Monday to discuss his investment firm's position on the markets. Here's what Buffett is saying about stocks.
  6. Managing Wealth

    Top 5 Positions in Warren Buffett's Portfolio

    Find out which stocks hold the top five positions in Warren Buffett's portfolio and comprise more than two-thirds of his portfolio total market value.
  7. Managing Wealth

    Warren Buffett: How He Does It

    The Sage of Omaha has a careful methodology for evaluating value stocks.
  8. Insights

    Economist Guide: 4 Lessons Warren Buffett Teaches Us

    Learn how Warren Buffett's most famous investment advice can teach investors to manage their own money and practices.
  9. Investing

    Buffett Says the Ultimate Business Partner Is...

    Warren Buffett believes that a life partner such as a spouse is one of the most important parts of being a successful businessperson or investor.
  10. Investing

    3 Misconceptions about Warren Buffett

    Learn why Warren Buffett is the man behind the curtain and how he is misunderstood regarding the ways he has adapted and changed his investing approach over the years.
RELATED TERMS
  1. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  2. Oracle Of Omaha

    The Oracle of Omaha is a nickname for Warren Buffett, who is ...
  3. Philip Fisher

    A widely acclaimed stock investor and author who is believe to ...
  4. Smart Money

    Smart money is the capital that is being invested or withdrawn ...
  5. Weak Sister

    An element that undermines the entire system. Weak sister can ...
  6. Jesse L. Livermore

    Livermore rose from a humble farming background to become a stock ...
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  3. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  4. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  5. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  6. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
Trading Center