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Blog

August 10th, 2012
Investment lessons of a lifetime

When you learn, you must learn from the best. And when it comes to investing, who better to learn from than legendary investor Warren Buffet?

Widely regarded as one of the most successful investors in the world, Warren Buffett is as
famous for his wit as he is for the investment skills that have put him among the world’s most wealthy people. But what can you learn from the insights that have made him so successful?

On investing when the market is falling: Buffett says,Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t  buy what is popular and do well.”[1]  One of his most famous quotes of all: “Be fearful when others are greedy, and be greedy when others are fearful.”[2]

On value investing: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” or, more succinctly, “Price is what you pay. Value is what you get.”[3]

Buffett’s advice is to invest in the future of the business: “If a business does well, the stock
eventually follows.” He studies annual reports in detail, but warns that “Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation”[4] and, with typical Buffett cynicism: “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”[5]

On timing the market: Buffett is a long-term investor. As he says of shares, “Our favourite holding period is forever.”[6] He freely admits that he has “…no idea of market timing. It’s easier to tell what will happen than when it will happen,”[7] and adds that “The fact that people will be full of greed, fear or folly is predictable. (But) the sequence is not predictable.”[8] He also agrees it’s deceptive to judge future performance by events of the past, pointing out that “The investor of today does not profit from yesterday’s growth.”

These are not just pithy quotations. Buffett has revisited and expanded these themes many times. He attributes his wealth to sticking with the investment basics — value investing in the shares of quality companies while making a long-term commitment, and staying with the market through good and bad times rather than trying to pick the market’s rising periods.

When it’s boiled down, Buffett’s most valuable secret is no secret at all. Sticking with it is
the secret.

Want to learn more about how to tailor your investments to suit your investment and risk
profile? Call Daniel at PFG Financial Services, today on 03 9375 5100.


 

[4] The Essays of Warren Buffett : Lessons for Corporate America (2001), p. 183

[7] ibid

[8] http://www.marketfolly.com/2009/09/top-25-warren-buffett-quotes.html#ixzz1p4BDCmKt

What you need to know This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning and other companies within the AMP Group will receive fees and other benefits, which will be a percentage of the premium you pay and/or the advice fee you agree with us. Some of the information in this article is based on our interpretation of the
law. It is a summary of the subject matter covered and is not intended to be comprehensive tax or financial advice. No reader should act on the basis of this article without obtaining specific professional advice. Further details are available from us, or AMP Financial Planning Pty Limited on telephone 1300 157 173.

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