The Oracle of Omaha’s Simple But Sensible Gems Can Make You A Better Investor In Any Economic Climate.
Here’s how you can benefit from his advice…
Warren Edward Buffett (83) is widely considered to be the most successful investor of our times. His investment successes, particularly in buying undervalued companies whose stocks shortly began to rise, made him extremely rich and gained him sobriquets like ‘Sage of Omaha’, and ‘Oracle of Omaha’.
Once someone asked Buffet his secrets of investing success over so many years. His reply was, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” One example is that of Buffett’s decision to invest $5 billion of Berkshire Hathaway’s funds in Wall Street financial giant Goldman Sachs in September 2008, at the height of the sub-prime induced global financial crisis.
At that time, Goldman was in dire need of money and by investing $5 billion in the then struggling giant, Buffett eventually ended up generating a return, by some estimates, of about 64% for Berkshire.
For all investors, there is a lesson from Buffett’s Goldman deal. “In today’s scenario, it takes great courage to invest in assets like equity or gold…at a time when the markets are correcting with increased frequency. But it is the right approach and will yield great dividends when the tide turns,” says Sanjay Mehta.
Over the years, Buffett has given us very simple yet priceless advice, which if followed by investors, are expected to yield handsome rewards over the long term. Here are a few gems from the Sage of Omaha, and what they mean for common investors, as explained by Mukund Seshadri (MS) and Sanjay Mehta (SM).
“Don’t save what is left after spending. Spend what is left after saving”
As investors, we are always postponing our investments, waiting for the month-end and hoping for some leftover cash to invest. But sadly it never works that way. Right at the outset, we have to earmark 10-25% of our income towards savings and learn to run our households with the rest, however hard that may be. — SM
“Chains of habit are too light to be felt until they are too heavy to be broken”
In a financial plan, the income and expenses sheet speaks a lot about the person and his/her lifestyle. We are seeing a surge among people’s expenses not because of consumer price inflation but due to lifestyle inflation. The magnitude of extravagant spending habits is not felt now but when the same starts hovering around us when we are due for retirement or there is a sudden job loss. It indeed makes sense to pull your reins now rather than totally losing control tomorrow. — MS
(Fact: Although Buffet is one of the wealthiest people in the world, he still lives in a five-room house in Omaha that he bought more than 50 years ago for $31,000)
“If you buy things you don’t need, you will soon sell things you need”
No matter how rich you are, spending just for the heck of it is sheer wastage and always ends badly. So only buy things that you need and not necessarily things you want, but may actually do even without it. — SM
“Someone is sitting in the shade today because someone planted a tree a long time ago”
Investing is not always short term. Our children will reap the benefit of most of our investments just as we are today enjoying the fruits of our parents’ savings. That is the circle of life. — SM
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted in patching leaks.
This is so true for the investors of today. We often come across cases where the client is holding on to his/her investments and trying to average it out from time to time so that he/she can reduce the impact of loses. Rather than this, all he/she has to do is to review his/her financial situation and understand whether he/she actually needs to be with that asset. If the answer is in the negative, he/she should focus the available resources towards avenues which actually would yield better results in achieving his/her financial goals. — MS
“Risk comes from not knowing what you’re doing”
Please remember that investing is not a rollercoaster ride where you plunge in and out of hot tips. If you want financial security and eventually seek to grow your wealth, following simple investing techniques like systematic investment plans and diversified asset allocation, along with the power of compounding, are what will eventually help you achieve your financial targets. — SM
“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant”
Investing is a marathon and not a 100-metre dash. Take your time. There is no rush. You are investing for the rest of your life. — SM
“The business schools reward difficult complex behaviour more than simple behaviour but simple behaviour is more effective”
This is so true in financial planning. The most difficult thing in financial planning is to keep things simple. However, investors keep looking for something new and different and many a times in the process end up losing the very purpose for which they invested. It is always effective to have simplistic solutions which help us achieve our financial milestones. — MS
The celebrated investor is also a leading philanthropist. In June 2006, Buffett announced that he would donate nearly all his wealth to charity, committing most of the same (about $31 billion) to the Bill & Melinda Gates Foundation. This donation turned out to be one of the largest acts of charity in the US as well as globally.
Buffett has said, “The happiest people do not necessarily have the best things. They simply appreciate the things they have.”
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