Warren Buffet & Common Sense Financial Strategies
Last year, Warren Buffett was ranked the 3rd 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 very differently than most people. This article will illustrate Buffett’s wisdom, in contrast to the way most people invest.
Beware of any one who advises you on your money who has a high lifestyle! If their business gets tough, they 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%); Good service (16%); Honesty (13%); Knowledgeable (9%); and Good advice (9%). This is a major reason why Americans have bad investment results. It’s style over substance.” Source: “Do Americans Trust Their Financial Planner? And Is It Misguided Trust?” by Dr. Harold Wong, 1/4/2012 AZ Republic.
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 advisor or decide to stay with their current advisor. I have seen many people who have lost lots of money with their brokers over 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 paid 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; CEO Ken Lay of Enron; or Bernie Madoff lived in million-dollar 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 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 Number 1 Rule is “Never Lose Money!” His Rule #2 is “Don’t Forget Rule Number 1”. Virtually any financial advisor, bank, or brokerage firm is talking to you about rate of return. This is in direct contrast to Buffett’s Rules #1 and #2. He understands this math: If you lose 50% 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% return just to get back to even.
Conclusion: Buffett has many famous sayings about investments, money, and life in general. Virtually every investor on Main Street and their financial advisors violate virtually all of Buffett’s rules.
Please contact Dr. Wong for a consultation at (480) 706-0177
