We Should All Listen to Warren Buffett

Each year Warren Buffett writes a letter to the shareholders of his company Berkshire Hathaway, which for the first time I am one of these proud shareholders or BuffetHeads (What do you call Warren Buffett fans anyways?).  For those of you who do not want to read the 28 pages of financial statement breakdown sprinkled with financial words of wisdom that come to light throughout I will be happy to share some of my favorite quotes from this year’s letter.  I equate this letter to Michael Jordan sharing some of his insights on how to be good at basketball, I’m all ears.  Let’s hear it Warren………

American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.

If you ever check out Yahoo finance or watch one of the investment broadcasts throughout the day, think shows with stock tickers running 24/7, you will undoubtedly find someone forecasting doom and gloom. The stock market will crash or now is the time to move to cash because the whole world is tumbling down to a big black pit of despair.  Warren Buffett says something that goes the other direction, he in fact says American business will do quite well in the years ahead.  Because we have people out there that are smart, hard working,  and innovative.  Buffett even goes as far to say that anyone who shorts the market will need an act from God to save them.  Like Aaron Rodgers, the quarterback of the Green Bay Packers had to say when everyone was doubting him and his team, R-E-L-A-X.

Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media.

Later on Buffett reminds us that while he has a bright and shiny future for American Business it’s possible that markets will decline and it might cause a panic among investors.  Let’s remember that while this may happen, this will not be predicted by some of the smartest investors in the world including Buffett, his trusted friend and business partner Charlie Munger, economists, and i’ll add this one with some emphasis NOT the media.

Yep, just me and Warren hanging out, talking investing. I like Dairy Queen blizzards, he owns Dairy Queen, the similarities are just endless.

 

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

My favorite quote of the Berkshire Hathaway letter to investors.  It’s one of the most difficult things to do as an investor and it goes really to the psychology of money.  Scary periods of investing are going to happen, but remember while this s*** certainly is scary it’s actually the best time in the world to be an investor because you are buying everything on sale.  While Buffett explains that personal fear is your enemy he does so explaining that it’s all for naught.  If investors would avoid high costs in their investments (more on that in a minute) and simply let time be on the side of American Business, we almost certainly do well.  Quick recap, investing is scary, but it’s all in your head, if you buy low cost collection of stocks, Buffett says you will be a billionaire.*

Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.

Here is the big one that everyone loves in the Financial Independence community, investment advice from our dear old friend.  Will Warren Buffett tell us to invest in gold? Of course not silly question.  What about technology?  Buffett doesn’t own a computer, that’s a terrible guess.  What about his own company Berkshire Hathaway?  Now you are getting warmer, but still not correct.  Warren Buffett instead says to buy low-index funds, specifically mentioning the S&P 500, a collection of  500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value.  While he doesn’t say it specifically in the quote I put here, he does mention John Bogle as an American hero, the founder and former CEO of Vanguard.

In summary American Business is doing  well, don’t listen to the “experts” about market crashes, investing can be scary, but if you stick with low-cost index funds for the long haul you will become a billionaire.*

While Warren Buffett probably doesn’t use Personal Capital, I do and it’s a great way to keep track of my investments, including all of my index funds from Vanguard!  If you click on the Fathead of Warren Buffett (also 29.99 on Fathead’s website, coming soon to investment man/women caves everywhere) shown above, this will take you to Personal Capital where you can sign up for free.**

 

*This is my summary, not a direct quote from my main man Warren Buffett.  This whole blog is for entertainment purposes only, I mean I’m using Fathead pictures of Warren Buffett there is no way I know what I’m talking about.

**I promote Personal Capital because I use it all of the time!  If you sign up using my link and have Warren Buffett like money they will send me money for signing up with my link.  If you do this I just might buy a Warren Buffett Fathead for my cubicle wall, yep pretty sure about that.

9 Responses to “We Should All Listen to Warren Buffett

  • Can’t really argue with advice from a self made billionaire, plus I like his blizzards too. 🙂 I read a summary of his letter. A lot of great nuggets. If someone was to ask my investment advice I’d tell them to follow Warren’s advice “My regular recommendation has been a low-cost S&P 500 index fund.”
    Brian recently posted…Interview Series: Mustard Seed MoneyMy Profile

  • Love the summary bud. I’m sure it’s much more “layman’s” terms too, haha :). I love that he’s backing up what I’ve been hearing more and more lately, buy a low cost index fund and just keep your nose to the grindstone while letting the power of compound interest work its magic! Have a great day!
    Steven Goodwin recently posted…5 Sure Proof Ways Of Adding Additional Value To Your HomeMy Profile

    • EvenStevenMoney
      2 months ago

      Thanks Steve, you know it’s all about Warren Buffett talk here at Even Steven Money!!!

  • Warren Buffett is one of the all time greats, no doubt about it. There’s a reason I have a bound copy of a significant portion of his letters to investors. Dry reading in the whole but worth the nuggets of wisdom spread throughout.

    I cleaned up in late 2008, early 2009 after the last crisis, but I’ve definitely missed out of some of the most recent gains. With all the growth the last decade, I keep waiting for the other shoe to drop.
    Jack @ Enwealthen recently posted…3 Biggest Neglected Investments You Haven’t MadeMy Profile

    • EvenStevenMoney
      2 months ago

      Dangerous territory to wait for the other shoe to drop. Yeah it can be fun to read to gain some wisdom and see what aligns in your thoughts with Warren’s and if they don’t wondering if you should change them!

  • I have no idea what “Warren Buffet groupies” should be called. “Buffetteers” perhaps?

    In the shareholder letter, he also cites the state of his famous bet on passive versus active investing. One year to go, and it’s pretty clear he’s won. Worth a read ….

    • EvenStevenMoney
      2 months ago

      I like the suggestion, haha Buffeteers! I love and hate the bet. I love that it pits Passive vs Active, I don’t love that it takes a fund of a fund on the active trading portion, but it still does a great job of showing that fees really matter.

  • I agree. I loved the HBO documentary on him. It will be a sad day when he passes on.

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