A man certified and accepted by the investment and finance fraternity as the ever intelligent and frugal investor in modern economy, Mr. Warren E. Buffet. He by his strategies and ideologies rose gradually in time to become one of the world’s richest man. According to Forbes, he is the third richest man in the world. Many has been said about him, books written about how he invests and manages his investment holdings. To me he is a simple but prudent investor and business magnate. Berkshire Hathaway, his company, has been in existence for about 180years and still counting. For Warren, he has managed the firm from 1964 till today (which is 55years now). His company is listed on the NYSE. His company stock this year had the highest stock price. “Berkshire’s class A shares sold for $313,350.00 as of February 1, 2019, making them the highest-priced shares on the New York Stock Exchange” , says Wikipedia.
In Mary Buffet and David Clark’s book; Warren Buffet’s management secrets, Warren has about 88 CEOs reporting directly and indirectly to him around the globe. He manages and pays about 389,373 employees in the world as at 2018(Wikipedia). His company is the 3rd largest publicly traded firm with a market capitalization of $496.966billion (as at 22-5-2019). This implies that his company is valued at the mentioned amount by investors. Such a huge amount to consider. I am hoping to see an indigenous company reach such historic height. Berkshire Hathaway generates a revenue of about $247.876billion annually. “As of 2018, Berkshire Hathaway is ranked third on the Fortune 500 rankings of the largest United States corporations by total revenue” (wikipedia). Currently Warren Buffet’s networth is about $82.5 billion according to Forbes. This is the man who shares some advice on investment and I want to share that with you. I hope this makes an impact in your investment life and your life as a whole. Alright then let’s dive straight into the four wisdom nuggets from Mr. Warren.
STOCK IS NOT FOR EVERYONE
Definitely stocks is not for everyone. I certainly agree to Mr Warren’s assertion. It is not everybody that can invest in stocks. The nature of stocks demands that an investor be patient and go long term. An investor should be able to stand the fluctuations in the stock market to make some profits. Every stock investor must have a great deal of plan to invest for the long term. Such investment needs fundamental, technical analysis among others to make an informed decision. Stocks have a high risk and high reward profile. The investor going in for stocks investment should note that the high reward will come with a high risk. With this most investors are not ready to bear the high risk. Somehow they are ready to take the reward that comes with it. And that is what has caused many dubious schemes(ponzi). Investors who fear or cannot afford to loose part or all of their money for higher profits should stay away from stocks. Investors can be identified as conservative, aggressive or speculative. Conservative means an investor who does not want to loose a bit of his invested money. Aggressive means taking in a little higher risk to earn more respectively. Lastly speculative investor is the one, who takes the highest risk to earn big on his investment. Which one are you? If you are not in the last two category then you cant go in for stocks.
DIVERSIFY, DIVERSIFY, DIVERSIFY
Diversification is the art of allocating funds to various investment vehicles. Mr Warren is advising investors on diversifying their funds to various investments. The ideal purposes are 1) reduce risk and 2) increases your returns(profits). In reducing your risk, diversifying will make you have two or more investments which will help safeguard your principal amount when any of your investment goes bad. So you get to have other investments working for you when one or two of your investment is plummeting. Diversifying will help you increase your returns. Having just one investment is different from having two or more. The returns from a couple of investment is much higher than returns from just one investment. This can be very possible if only the diversification is done well. An example of diversifying is allocating your ghs500.00 to some investment vehicles like treasury bills(ghs200.00), mutual funds(ghs100.00), stocks(ghs50.00) and cash-savings(ghs50.00). Don’t just put your money in one investment, it is too risky, diversify, diversify!
THINK LONG TERM AND BE PATIENT
For investment to make you wealthy you need to go the long term. Mr. Warren actually started investing at a tender age and he had a long term mindset. And now he is the third richest man in the world. He has been in the first five richest men for years and he is still there. All he knows is good investment and going long term. And he advices that investors should do long term and be patient. You know patience is certainly a virtue we all need in every facet of our life. Sometimes it’s amazing how people who want to change their financial status disagree with going long term. I perfectly understand them because our financial system is still developing and we are not sure of some institutions staying for long. I have realised that most Ghanaian owned companies dont outlive their founders. And that doesn’t make the financial institutions create that investor confidence in the economy. I am yet to know any organisation that has outlived its owners(specifically financial institutions). Having organisation to stay longer is actually an investment for the long term. And it creates and nurtures investor confidence and trust. Mr. Warren Buffets’ organisation have been operating for over 180 years. That is long term right? So investor folks, lets think long term. Let’s go for long term.
STOCKS GENERALLY OUTPERFORM FIXED INCOME INVESTMENTS
Stocks are not for everyone but it outperforms fixed income investments. This is a proven advice from Mr. Warren. Historically stocks have generally outperform fixed income investments. But it is so amazing how many investment folks do not like to engage in stocks. If you learn the nature of stocks and how it works you will be comfortable investing in it. Maybe one day I will share with you how stocks work. Stocks are normally riskier than fixed income investments- bonds, treasury Bills etc. They are for longer term and longer term plans. Example is a young graduate who wants to make wealth, buy a house, or create a business that is capital intensive. Ideally by 3 to 5years your stock investment should yield a significant interest to get you your dream, all things being equal. I believe stocks are good, with the help of an investment advisor and knowledge you will make some good money from stocks.
In conclusion, making efforts to implement these advice from Mr. Buffet can go a long way to change your investment style and increase your returns. As a reminder, know that stocks is not for everyone. Know what best works for you when it comes to investment and go for it with the help of an investment advisor. Try and diversify the funds you want to invest. It is better that way. Also, think long term and dont be afraid to go long term. The benefits of going long term far outweighs short term investments. Lastly, understand that stocks historically has proven to have outperformed fixed income investments. Endeavour to have a stock investment or a stock related investment to balance your portfolio(your various investments). It will increase your returns. Take precautionary measures by asking an investment advisor to help you out.