Four top investing tips from the Oracle
I always look forward to Warren Buffett’s annual letter to Berkshire Hathaway shareholders. This year’s edition, released on March 1, is the Oracle of Omaha’s usual combination of penetrating insight and folksy investment advice.
I pay particular attention to Buffett’s wisdom because, well, it happens to agree with my views on investing. I’m sure the foremost investor of our time checks out my columns before he issues his annual sermon. One day I’ll take a jog over to Nebraska and ask him.
Here are four top investing tips from the Oracle. Follow them religiously to become a better investor.
1. Keep it simple
“You don’t need to be an expert in order to achieve satisfactory investment returns,” Buffett emphasizes. “But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick no.”
To this I would also add trust your gut. If you don’t understand an investment, or feel uncomfortable about it, don’t buy it! Virtually 100 per cent of the people I’ve talked to over the years who’ve made bad investments have felt uneasy beforehand.
2. Buy the index
Before purchasing a company, Buffett and his management team undertake an intense analysis. But Buffet doesn’t believe that the average investor needs these skills.
“The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.” By index fund Buffett is referring to exchange-traded funds or ETFs.
This is, of course, advice that mutual fund managers and “helpers” or advisors hate to hear. But the simple fact is that Canadian mutual fund managers only meet or beat their comparable benchmark index about a quarter of the time. If you have low odds of beating the index, why not just buy the index itself through an ETF that charges low fees and puts you ahead of the game from the get go?