Investment Advice from Warren Buffett
Warren Buffett is widely regarded as one of the greatest investors of all time. He has a tremendous record of picking winning stocks. What does this legendary investor say about how to invest?
In the 2013 annual letter to Berkshire shareholders, Warren Buffett instructed his heirs to invest in index funds.
Buffett went on to say, “I have good news for the non-investment professionals. The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so, though, most assuredly, in unpredictable fits and starts. In the 20th century, the Dow Jones Industrials Index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st century will witness further gains, almost certain to be substantial. 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.”
Again, from the letter, “Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or affecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal and invest in stocks as you would in a farm. There might be bad weather. There could be a crop failure one year or the next. There are certain costs of doing business, mostly predictable and best kept low. And, largely, there’s nothing to do. Like crops in the field, a long-term, mostly stock investment cannot help but produce a reasonable return – assuming you don’t overthink it and don’t spend willy-nilly in a vain attempt to make it grow faster.”
Buffett himself owns a 400-acre farm. Has he laid awake at night worrying about fluctuations in the farm’s market price? No, says Buffett. He has focused on its long-term value. And he counsels investors to take the same relaxed approach to liquid investments such as shares of stock as they do to the value of their family farm.
“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations,” Buffett said. “For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”
“Owners of stocks too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally,” Buffett says. “Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.”
If you invest in the stock market, you would be wise to follow the advice of Warren Buffett and buy and hold a diversified portfolio of low-cost index or asset-class mutual funds. Make sure the portfolio contains multiple asset classes and is matched to your tolerance for investment risk.
Chris Nolt is the owner of Solid Rock Wealth Management, Inc. and Solid Rock Realty Advisors, LLC, sister companies dedicated to working with families around the country who are selling a farm or ranch and transitioning into retirement. For more information, visit solidrockproperty.com and solidrockwealth.com.