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 does Warren Buffett choose his stocks?

    Investors have long praised Warren Buffett’s ability to pick great companies to invest in. Here are the key considerations ... Read Answer >>
  2. How is Warren Buffett Plan Bequeathing his Estate?

    Find out how much Warren Buffett is leaving for his heirs and how he wants the funds invested after his death. Learn about ... Read Answer >>
  3. Does Warren Buffett invest in gold? Why or why not?

    Discover what Warren Buffett's investment stance is toward gold and silver, why he likes one of them a lot and the other ... 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 >>
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. Investing

    6 Successful Investments Warren Buffett Passed On (GOOGL, XRX)

    Even Warren Buffett, the greatest investor of our time, has made many unforced errors. Investors can learn from his mistakes of omission and commission.
  3. Investing

    The best books on Warren Buffett

    These six books aren’t as satisfying as owning Berkshire-Hathaway shares, but there is a lot of knowledge and enjoyment in them nonetheless.
  4. Investing

    Why Warren Buffett Envies You

    The Oracle of Omaha can move over - there's a new investor in town.
  5. 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. ...
  6. Personal Finance

    Warren Buffett's frugal, so why aren't you?

    Warren Buffett, the Oracle of Omaha, has a net worth in the billions, but his lifestyle is not as rich as you may think.
  7. Insights

    Warren Buffett: The Road To Riches

    Find out how he went from selling soft drinks to buying up companies and making billions of dollars.
  8. Managing Wealth

    Warren Buffett: Oracle No More?

    Though he's an investing icon, critics are pointing to several past events that signal Buffett's reign may be ending.
  9. Managing Wealth

    Warren Buffett's Bear Market Maneuvers

    This esteemed investor rarely changes his long-term investing strategy, no matter what the market does.
RELATED TERMS
  1. Philip Fisher

    Philip Fisher was an acclaimed investor known for writing the ...
  2. Holdings

    Holdings are the securities within the portfolio of a mutual ...
  3. Average Down

    Average down is a technique thought to add value to a portfolio ...
  4. Smart Money

    Smart money is the capital that is being invested or withdrawn ...
  5. Margin Of Safety

    Margin of safety is an investing principle in which an investor ...
  6. Jesse L. Livermore

    Livermore rose from a humble farming background to become a stock ...
Hot Definitions
  1. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  2. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  3. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  4. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  5. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  6. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Trading Center