Updated: 11/11/2010 9:00 AM ET|
Buffett's tips for new investors
The world's most famous investor lays out his basic principles in this year's annual letter to Berkshire Hathaway shareholders.
Every few years, critics say Warren Buffett has lost his touch. He's too old and too old-fashioned, they claim. He doesn't get it anymore. This time he's wrong.
It happened during the dot-com bubble, when Buffett was mocked for refusing to join the party. And it happened again during the recent financial crisis. As the Dow Jones Industrial Average ($INDU) tumbled below 7,000, Buffett came under fire for having jumped into the crisis too early and too boldly, making big bets on Goldman Sachs Group (GS, news) and General Electric (GE, news) during the fall of 2008, and urging the public to plunge into shares.
Now it's time for those critics to sit down for their traditional three-course meal: humble pie, their own words and crow.
Class A shares of Buffett's investment vehicle, Berkshire Hathaway (BRK.A, news), slumped to nearly $70,000 in early 2009 but have since rebounded to above $12,000, as those bets on GE and Goldman have paid off.
Anyone who took Buffett's advice and invested in the stock market in October 2008, even through a simple index fund, would have been up about 30% two years later.
This is nothing new, of course. Anyone who held a $10,000 stake in Berkshire Hathaway at the start of 1965 has about $80 million today.
How does he do it? Buffett explained his beliefs to new investors in a recent annual letter to stockholders:
Stay liquid. "We will never become dependent on the kindness of strangers," he wrote. "We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses."
Buy when everyone else is selling. "We've put a lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear is their best friend. . . . Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble."
Don't buy when everyone else is buying. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance," Buffett wrote. The obvious corollary is to be patient. You can only buy when everyone else is selling if you have held your fire when everyone was buying.
Value, value, value. "In the end, what counts in investing is what you pay for a business -- through the purchase of a small piece of it in the stock market -- and what that business earns in the succeeding decade or two."
Don't get suckered by big growth stories. Buffett reminded investors that he and Berkshire Vice Chairman Charlie Munger "avoid businesses whose futures we can't evaluate, no matter how exciting their products may be."
Most investors who bet on the auto industry in 1910, planes in 1930 or TV makers in 1950 ended up losing their shirts, even though the products really did change the world. "Dramatic growth" doesn't always lead to high profit margins and returns on capital. China, anyone?
Understand what you own. "Investors who buy and sell based upon media or analyst commentary are not for us," Buffett wrote.
"We want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it's one that follows policies with which they concur."
Defense beats offense. "Though we have lagged the S & P in some years that were positive for the market, we have consistently done better than the S & P in the 11 years during which it delivered negative results. In other words, our defense has been better than our offense, and that's likely to continue."
Timely advice from Buffett for turbulent times.
This article was reported by Brett Arends for The Wall Street Journal.
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"Class A shares of Buffett's investment vehicle, Berkshire Hathaway slumped to nearly $70,000 in early 2009 but have since rebounded to above $12,000, as those bets on GE and Goldman have paid off."
Warren wil be annoyed to see how his good work has dropped BRK.A. shares to $12,000!
The Obama Administration would never limit the growth of the entitlement and welfare state, spending US into oblivion. He made the socialist European Counties seem conservative by comparison. Barack fell into a deep state of depression. Government had always existed to serve him and his kind. He was the President of the United States of America, once the most powerful man in the world. Citizens needed his supreme progressive wisdom to guide them through perilous times. Since he was intellectually and morally superior, lesser people needed to follow his commands. They, like young dependant children do not know what is best.
The Progressives even lost support of the ‘AP” Associated Press and the “AM” Associated Media of ABC. NBC, CBS, CNBC, NPR and CNN. News Anchors and senior reporters of the “AP” and “AM” awoke early each morning anxiously awaiting their daily talking points from their Leftist comrades in the Democratic Party. Every day they repeated with glee the same message taken from their talking points. They either were mindless news zombies, or totally in the tank with the Liberals. Who wrote the words that they repeated? Their message was so homogeneous, that it had to originate from one source. This control and leftist slanting of the news and opinion furthered the demise of the country. Why would the population be swayed by the agenda of the Left? It had to be by lies and deceit. Towards the end, the leftist elite media became politically disturbed that they lost control of the message. August 22, 2010 I watched a pathetic segment on the CBS Morning Show. A bitter old man was reporting how terrible that blogs on the internet were reporting truthfully that Barack is a Moslem. You could feel the anger extruding from his beady eyes, wrinkled face and monotone voice. He privately was devastated that the “AM” and “AP” had lost the monopoly on controlling the propaganda. His last broadcast words were Damn the internet, Damn Fox News. At the end, no media remained to spread the propaganda of the “left”.
The stock market had completely tanked. Berkshire Hathaway INC DEL stock price was $123,356 per share as of April 25, 2011. By the end of 2012 the stock price was $12.3356. This price was outstanding compared to other stocks. The “Oracle of Omaha” Warren Buffett had worked his financial magic once again! Before Warren died, his main regret from his deathbed was not doing more to help the young, incompetent president to destroy US. Geico, a Berkshire Hathaway Company was forced into bankruptcy. Geico tried to continue receiving premiums and paying claims and employees with dollars which were now worthless. This financial charade could not last! The Geico Gecko was given a tiny pink slip joining the millions now unemployed. He was last seen leaving town on foot with his entire Gecko earthy possessions wrapped in a tiny bag at the end of a small twig, hung over his leftist shoulder. He traveled only during the day, since Spotted Owls ruled the night’s sky. At least he was lucky that no clothes were required. He was heading back to his place of origin. He was also disturbed that he could never be President, not being born in America. Dang, “Obama gets away with everything” was heard as the walked away. Geico’s advertising stated his origin was England, New Zealand or Australia. It can’t be Australia since he is definitely not a marsupial. A built in pouch would be handy for storage.
Unfortunately most of the richest people in the world where invested in financial paper instruments tied to the dollar. They mastered and controlled vast quantities of stocks, bonds, certificates of deposit, savings accounts and much more. Most of this financial investment s was not worth the value of their paper. The economic collapse was harder on the former rich. Obama finally had made everyone to suffer equally and in that why he reached his socialist utopia. The former rich had more assets to lose and further to fall down the economic ladder. You could say they were in an economic freefall. Since many wealthy people in New York City lived in fancy, exclusive top floor penthouses, they made a greater splash when hitting the pavement below. When Obama heard the sounds of crashing bones and saw the broken limp bodies and blood on the sidewalks, he said “Praise be to Allah.”
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