Many consider Warren Buffett, the world’s fourth wealthiest individual, is the greatest investor in the previous century.
Mr. Buffet is well-known for his patent folksy insight on money matters and continues to provide many investors with valuable investment advice. Here is a rundown of what many consider Warren Buffet’s best investment tips (not including the latest stock picks):
1. “It is better to buy a wonderful company at a fair price than a fair company at a wonderful price.” (From a letter to shareholders in 1989)
This advice from Buffet is a favorite quote of many investors. It contains a fundamental principle he has used effectively for years as his strategy for investing. Essentially, he chooses firms which he can completely understand and whose innate worth is clearly apparent, no matter what its present financial condition might be. Today, Buffet is # 4 only because he gives out large sums of his money to charity; otherwise, he would be the top choice -- like he was in 2008 in Forbes' choice of the richest person worldwide.
Buffett started his enterprising journey in Omaha, Nebraska as a boy selling magazines and chewing gum to families. At 14, he filed his first tax return (claiming deductions for his watch and the bike he used on his paper route). He and a friend purchased and operated a pinball machine when he was in high school. The two also set up a town barber shop and later on expanded the business around town to incorporate pinball machines.
Currently, Mr. Buffett has a personal net worth of about $55 billion and his investment company, Berkshire Hathaway, completely owns several reputable U.S. firms, such as Dairy Queen, Helzberg Diamonds, GEICO and 50% of Heinz.
2. “Rule No. 1: Do not lose money; rule No. 2: Remember Rule No. 1” (From "The Tao of Warren Buffett", 2006)
3. “Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it's the lack of change that appeals to me. I don't think it is going to be hurt by the Internet. That's the kind of business I like.” (From Businessweek, 1999)
Berkshire Hathaway's portfolio proves that Buffet practices what he preaches: The company invests principally in firms that have operated for many years and can be described in a few words: GEICO sells insurance, Dairy Queen sells ice cream, etc.
The story of how Buffett's relationship with GEICO began goes back as early as 1952, at the time he sought to meet one of his investment idols, Benjamin Graham, who sat on GEICO's board. He ended up accidentally meeting the firm’s vice-president then, Lorimer Davidson, who has become Buffet’s close friend since then.
4. “The stock market is a no-called-strike game. You don't have to swing at everything – you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, ‘Swing, you bum!’“ (From "The Tao of Warren Buffett", 2006)
5. “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” (From a panel discussion after the documentary premier of "I.O.U.S.A", 2008)
6. “Price is what you pay; value is what you get. Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.” (From a letter to shareholders in 2008)
Shareholders at Berkshire Hathaway eagerly await Warren Buffett's yearly letters and admire them for their great storytelling using simple and clear words.
7. “If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety.” (From a Berkshire Hathaway annual meeting in 1997)
8. “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.” (From "Buffett: The Making of an American Capitalist", 1995)
This signifies that a business that is quite unstable will also require a greater margin of safety in case you decide to invest in that business. For instance, if you drive a truck over a bridge that can only carry 5 tons and your truck weighs 4.8 tons and the bridge is less than a meter above a stream, you might feel much safer than if it were over a 20-meter ravine.
9. “We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.” (From a letter to shareholders in 1992)
Charlie Munger, also a native of Omaha, Nebraska, serves as vice-chairman of Berkshire Hathaway and has been Mr. Buffet’s business partner for many years. He also serves as Costco’s director. In spite of their close personal and business relationships, they differ in political preferences, Munger being a recognized Republican while Buffett has recently supported Democrats.
10. “We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.” (From a Berkshire Hathaway annual meeting in 1998).
In the middle of positive signs for economic progress and with decreased focus on the bondholders’ interests, what should an investor do? We suggest these six timely tips.
Remain Actively Involved
Managers who stayed active last year experienced a highly productive time, in part due to their tendency to steer away from hyper-cyclical one-theme sectors, such as resources which had a great recovery last year, and in part due to paradigmatic policy changes during the same period.
The dominant macro-economic forces caused stock pickers to react slowly; however, with fresh themes appearing on the horizon, active managers looked at enough valuation anomalies to exploit.
Focus on Value
Valuations in the equity market stay higher than their averages over the past, in part due to low earnings in some sectors and in part due to the valuation driven drastically by low interest rates. Few windfalls can be derived from index levels; thus, be very picky when choosing within and between markets.
Never Assume or Overreact
Although political risks abounded (remember the UK exit from the EU, the rush of European elections and the entry of Trump on the scene – referred to as 'known unknowns'?) a lot of complaints, I know, 2016 taught us that anticipated reactions could totally misjudge the import of new political developments.
For instance, Brexit has certainly made predicting the UK economy more difficult; but the dip in the value of the sterling has enhanced the prospects of earnings in the corporate sector.
Predominantly, developments in 2017 could raise short-term volatility with the ultimate outcome being brought about by economic events. As the saying aptly says, the markets are short-term voting machines but long-term weighing machines.
While greater growth and increased inflation can both appear highly possible, debt levels, technology and surplus supply work together as a secular force to prevent inflation; on the other hand, any fiscal package is slow to resolve and enforce, thus, the impetus for growth may also take time to work.
Trapped in Bonds
Many of us know that Ian Fleming never wrote some of the Bond movie scripts; and so, investors have an alibi for wondering whether a bond which charges interest (rather than paying) is an asset or a liability (or, maybe seen as a temporary security).
Aim for Freedom of Thought
The present world is not more a post-factual world than a post-truthful news machine. Eventually, the truth returns with a vengeance when people who trust untruths fall along the way.
Make up your own mind; there is no other way – just make sure you get advice when needed. This is because people rush into buying during high markets and into selling going into a dip. The rule to follow in this case is: Be greedy only when others are fearful and be fearful when others are greedy.
Be an optimist. With the advent of active management and the progress of human endeavors through the centuries, it always pays to support and to look forward to progress.
Nature teaches us innumerous lessons on adaptability, a skill as widely valuable in finances as in the jungles of South America; and 2017 will surely have its share of events that will challenge our skills in reacting to difficult situations..
Check valuations closely. Equity valuations may seem high but reasonable, considering low revenues in other places, while public bond yields may seem to provide low investment value, but unthinkable under normalized conditions.
Avoid hoping for substantial returns from equities from this stage; although corporate earnings seem to be improving – it all depends really on how the growth interacts with valuation challenges as interest rates increase.
Considering that long-term UK government bonds produce less than the Bank of England's inflation goal, it might be difficult to predict how returns (before tax) will fare any better than inflation and quite easy to foresee how they will do worse.
With the New Year 2017 here now, people find themselves again looking for ways to build financial resolutions to help them ultimately succeed. In a recent study involving over 5,000 American adults, the three resolutions at the top of the list were, in order: to save more, pay off debt and improve income.
Whereas enhancing savings and reducing one’s expenses make for a good beginning as well as bring lasting benefits, one need not stop there. For those who may feel their present financial status needs a makeover or simply want to change the way they deal with money, here’s 10 suggestions to formulate effective financial resolutions.
1. Set flexible objectives. Within the past 12 months, what major changes in your finances have you observed? Do you expect them to change within the following 12 months? Did you ever set any financial objectives before? If you are not certain, do not fret – this could be the perfect time to begin. Distinguish your objectives into two classes, long-term and short-term. After that, you can chart your own map to achieving both types of goals.
2. Establish a more efficient spending program. This is an indispensable and essential tip, one that must form as the foundation for each financial decision you will make. Write down all your expenses and subtract it from your salary to find out how you fare in your finances. Some of your expenses may have to be reduced to leave some money for vital needs while living within your means and fulfilling your future financial aspirations.
3. Set up an emergency fund. The same with increasing your savings and reducing expenses, setting up an emergency fund also strengthens your overall financial health. There will always be unexpected expenses along the way; however, being prepared reduces any adverse effects. Financial experts recommend putting aside an emergency fund to cover three to six months of your living expenses in case you lose a job or need medical attention.
4. Set aside money for a down payment. With the economic crisis limiting access to credit, buying a home, which is every non-homeowner’s dream, has become even more difficult. If you are one of those who have this long-term goal, save some of your money now. Be prepared to put down 10 to 20 % of the price of your dream house, depending on the real estate prices in your locality. Paying 20 % down payment allows you to waive a private-mortgage insurance; so make this your target level. While it is harder to achieve, it will help you follow the save-more/spend-less mantra in the long run.
5. Pay your big debts first. Although most people want to pay off all their debts, they fail to realize that not all debts have the same urgency. For instance, credit cards that charge high interests must be paid off ahead of others. Again, saving more money by spending less on interests is the rule.
6. Plan for your retirement. For many young people, planning for retirement may seem too early in the day; however, this misplaced attitude is actually counterproductive. In case you still do not have one, apply for an individual retirement account (IRA) – ask your CPA if a conventional IRA or a Roth IRA best suits your situation. Continue contributing to your 401(k) if your employer matches your regular payments. That is free money you can avail of for your benefit; so receive it by the good graces of your employer. Pay as much as you can on those contributions.
7. Regularly check your income tax situation and estate plans. Do you get a sizeable tax refund? Have you had changes in your tax payments? Do you receive only one income even though you are a two-income couple because you lost your job or went through pregnancy? Did you experience becoming self-employed after having been an employee previously or vice versa? Did you or your spouse retire and begin getting pension income or reach the wonderful age of 70½ and must now get mandatory IRA benefits? If so, you may have to adjust your withholding to avoid any adverse events. Moreover, you need not be so wealthy or own a yacht to need an estate plan. As long as you have assets, you need an estate plan. All the above questions will be answered sufficiently by your CPA; so, pay him or her a visit.
8. Be informed. Always be conscious about your financial well-being. Maintain a clean credit record, check your credit statements regularly and be aware of any changes. At the start of each year, resolve to read your credit reports. Monitor closely your bank account statements and credit card statements in order to avoid any imminent problems.
9. Seek professional help if needed. Ask your CPA once in a while in order to find out if you are well on your way to attaining your goals. When you need expert advice, get it; otherwise, do your share in keeping your finances on keel.
10. Wizen up. Although it is good to seek professional advice when needed, make sure you also know enough to take care of important decisions yourself. Get to know your financial situation and various investment opportunities. Attend seminars and classes; read books or magazines; and learn from others’ experiences and knowhow. Having sufficient knowledge allows you to have proper control of your financial welfare.
Frank Owens Limited provides a broad range of professional financial advice to entrepreneurs and business managers with respect to the most appropriate steps in acquisition, disposition and funds sourcing, based on the present market conditions.