You should listen to Warren Buffet, the greatest investor of all time. It’s not hard to see why. If you had invested $10,000 in his holding company, Berkshire Hathaway (NYSE: BRK-A), when he started 53 years ago, it would have grown to $196 million by the end of last year. Benefit from Buffet and follow his advice he dispenses in his annual letter to shareholders. The 2018 report came out a few weeks ago and, as usual, contained several interesting opinions worth adopting.
His lucid, straightforward advice has been “translated” as following:
1.) Some of your investments simply will not work out. That’s no reason to despair since others will. A stock can decline 100%, but that risk is more than offset by the fact that it can also rise many hundreds of percent.
2.) The stocks in your portfolio are not poker chips. They represent a fractional interest in various businesses. Deciding whether to own them or hold them means comparing their current prices with their future prospects.
3.) Economic forecasting doesn’t work and neither does jumping in and out of the market. Investment success is about time in the market and not trying to time the market.
4.) Using margin may goose your returns in an up market, but it can be your undoing in a bear market. A 50% decline in stocks, which has happened twice in the last 30 years and will almost certainly happen again, can cut the value of your portfolio in half. But it will wipe out a fully leveraged portfolio.
5.) Successful investing is not about outguessing the Fed, forecasting GDP growth or predicting next year’s election winners. Again, it’s about evaluating, monitoring and reappraising the various businesses you own.
6.) Despite more than 200 years of wars, recessions, inflation, political upheavals and financial crises, nothing has outperformed a diversified portfolio of high-quality U.S. stocks over the long haul. And that isn’t likely to change.
Listened to the greatest investor of all time!
Sven Franssen