MSN Money has a sensational article on Warren Buffet’s advice for new investors.
I still love that he was mocked for not joining in on the dot.com boom. Imagine the eating of humble pie that went on around America once all that hit the fan. According to this article, anyone who invested in $10,000 in Berkshire Hathaway (Buffet’s company) in 1965 would now be worth $80 million.
How I wish he could run my life. Not only would I get to hang with Obama, Warren would take one look at what I earn and what my debts are and whip me up some magic concoction that would make me both solvent and an acutely clever investor. Apparently, he also got laughed at for suggesting people invest in October 2008. Not many people took his advice but anyone who did is now up 25%. If I knew Warren Buffett, I would probably rely on him for every decision. What to wear, who to date, and certainly where to invest.
I’m afraid I’m still waiting on the answer to the first two questions, but luckily for us, here are some of his pointers on what to do if you have just kicked off an investment portfolio.
Fluidity and liquidity are crucial. Always arrange your finances so that any demand for cash will be easily overwhelmed by the liquidity you have at your disposal.
Getting stuck in one thing without being able to move you money around is apparently not good (and anyone who has had an unexpected expense with all their money in a term deposit will know exactly how that feels).
Buy when everyone is selling
You need a certain amount of financial fat to get away with this one. Apparently fear is an investor’s best friend. That’s probably why I’m not much of an investor- I like peace and quiet and 8 hours of sleep a night.
Buffett made a bucketload over the last couple of years, because not many people had the sense (or the money) to capitalize on a plunging stockmarket.
Don’t buy when everyone else is buying
Obviously this is the only way you can afford to buy when everyone is selling. Hold off your purchases when the stockmarket is buoyant. You may feel better about it, but you’ll lose money at the plunge and have nothing to buy with.
Patience is apparently another important characteristic, making investment look more and more distant from my personality type.
Understand what you own
Here’s the crux of why Buffett is so good. He never invests in something he can’t predict. He “avoids businesses whose future we can’t evaluate, no matter how exciting their products may be”. Hence the dodging of the dot.com bullet.
Dramatic growth is never as good as gradual and positive growth that is sustainable and long term. He suggests investing based on what you know of a company or institution, not what the media tells you, which I would say was good advice for any kind of financial decision.
Now if only I could get that kind of advice on my love life and on whether purple really is a flattering colour for my skin tone, my whole life would be much improved.