Image by: Javier
By Michael Sterling
Widely considered to be one of the most successful investors of the 20th century, Warren Buffet has managed to be consistently ranked one of the world’s wealthiest people. With a current net worth of just over $50 billion, Buffett is the CEO of Berkshire Hathaway, the ninth leading public company in the world.
Averaging an annual growth in book value of 19.7% to its shareholders for the last 48 years, Berkshire Hathaway owns GEICO, Dairy Queen, Fruit of the Loom, NetJets, Helzberg Diamonds and most recently, half of Heinz ketchup (just to name a few). So what does one of the wealthiest business magnates have to say about investing in 2013? Let’s take a closer look.
Buffet has always had an image of being a “worry-free” type of investor, never putting the cart before the horse and always focusing on the present, instead of relying on future predictions. This can be a great lesson to be learned. The economy itself took a major slam since the 2008 crisis, but according to Buffet, it’s steadily rising again.
Unemployment will be coming down in the next 12 months, but the rate won’t be as fast as everyone wants it to be, said Buffet. In general, America has been doing the right things by applying fiscal stimulus in a big way and by adding even more, we might push job creations a bit further.
“The downside of the that stimulus would be greater than the immediate benefits.” Buffet said to CNN.
On Short Term Investing
In the times when Buffet and his right hand man Charlie Munger were doing business, the Federal Reserve didn’t seem to be as hands on to the market place. But according to Buffet, fluctuating investments should inspire you to think more logically about your money.
“Investors are trying something impossible if they think they can decipher stocks in short term. If you think you know, you’re kidding yourself.” said Buffet.“There’s no question that low interest rates have pushed up all assets, including stocks. If you ask me, I’d like to have my money in stocks.”
An investor should never worry about what the market is going to do next week, month, year or even 10 – 20 years, Buffet advises. Looking back, one will always feel that they should have bought stocks at this point in time. With an old school way of thinking, he’s always said that in order to make money, you need to spend less than you earn. Sounds easy enough, right?
On Small Sum Investing
Working with little money might seem like you have minimal opportunity to gain wealth, but according to Buffet, small sum investors have a higher advantage in making money than he does.
“There’s more opportunities when you’re working with small sums,” Buffet advises. “When you work with large sums, there’s relatively few possibilities in the investment world that can make a real difference in your net worth. If you work with little money, you have an advantage over me.
“I bought the stock for GEICO in 1951 when I had about 10,000 dollars. It was selling way above book value, there’s a certain irony in that, but I’m glad I did it.”
Buffet also recognizes that there is a serious problem in limitations, especially with small sum investors, stating that leverages have enticed people to do crazy things since bankers offer government guaranteed deposits, which can trap people to over leverage unless there are limits.
“There should be limitations on how much leverage you get in the system. Derivatives can create a whole lot more leverages than people understand.”
Investing Strategy
Buffet and Munger have always said that their strategy for investing hasn’t changed. The rules of money will always be the same, it is only the system that tries to manipulate it. The secret to investing can be summed up into four easy steps:
- Know WHY the company you’re investing in can be a winner by realizing it’s unique advantages, both in the market and the times.
- Know what this company is worth, in numbers.
- Know to pay less than that accumulated amout to buy it.
- Know that it’s better to hold your money than to invest it poorly.