Warren Buffett & common sense financial strategies

December 7, 2016

By Harold Wong
Sound Money

Last year, Warren Buffett was ranked the third wealthiest person in the world. He is known as the “Oracle of Omaha” or the “Stock Market King.” A huge key to his massive success is that he looks at the world of money and investing differently than most people. Learn from Buffett’s wisdom, in contrast to the way most people invest.

Beware of anyone who advises you on your money who has an expensive lifestyle. If his business gets tough, he may be tempted to cut corners or even steal from you. When one looks at the research study paid for by Sentient Decision Science, “Consumers who trust their own personal financial planner attribute that feeling to a variety of factors, including: Personal relationship (23 percent); Good service (16%); Honesty (13 percent); Knowledgeable (9 percent); and Good advice (9 percent). This is a major reason why Americans have bad investment results. It’s style over substance.”

The big Wall Street firms look at this and similar surveys. That’s why they have fancy offices, require their brokers to wear suits; and ask them to lease a fancy car if they can’t afford one. They realize that honesty, knowledge and good advice are pretty irrelevant to why Americans pick their financial adviser or decide to stay with their current adviser. I have seen many people who have lost lots of money with their brokers during the last 15 years, but refuse to change because of their emotional attachment to their current broker.

In contrast, Buffett has lived in the same house for about 50 years and, payed only $31,500 for it. When he donated his personal car to be auctioned off for a battered women’s charity, it was worth less than $10,000. He has not given himself a raise in his Berkshire Hathaway salary for about 30 years. No one has ever accused Buffett of stealing from his investors. In contrast, virtually all of the people who are known for big scams, from Charles Keating of Lincoln Savings & Loan, AZ; Chief Executive Officer Ken Lay of Enron; or Bernie Madoff lived in $1 million-plus houses and drove fancy cars.

Buffett has tremendous courage and self-confidence. In 1951, he earned his master of science degree in economics at Columbia, an Ivy League school in New York. Yet, he moved to remote Omaha, NE. He’s been asked many times why he didn’t have a career in Wall Street, the center of the U.S. stock markets. His answer is that if he stayed in Wall Street, he would eventually become victim of group thinking and be just as much of an idiot as all the others. For example, one of his rules is “Don’t buy a stock and hold it for 10 minutes if you wouldn’t hold it for 10 years.” Yet, virtually every mutual fund is trading monthly, weekly and daily. There’s no mutual fund that says, “Here’s the closing date for all the initial investors. After that, we will wait 10 years and then issue a report on how well we did.”

Buffett’s No. 1 Rule is “Never Lose Money!” His No. 2 Rule is “Don’t Forget Rule No. 1.” Virtually any financial adviser, bank or brokerage firm is talking to you about rate of return. This is in direct contrast to Buffett’s rules. He understands this math: If you lose 50 percent in a stock market crash (such as during the 2000-2002 dot-com crash and the 2008-2009 real estate crash), you will need a total 100 percent return just to get back to even.

Buffett has many famous sayings about investments, money and life in general. Virtually every investor on Main Street and their financial advisers violate virtually all of Buffett’s rules. © Harold Wong 2016

 

Harold Wong can be reached for consultation at 480-706-0177. For his archived research, click on www.DrWongInvestorGuide.com.

 

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