The Sage of Omaha

Certainly many Millions, probably billions of pounds is spent on investment advice every year by the British public.  The vast majority will be in the form of fees paid to professional fund managers, but huge sums  are also spent on buying books and magazines about investing.

I have bought several investment books since I started managing my own assets about 5 years ago.  They range from the brilliant and essential (especially The Long and the short of it by Professor John Kay) to many virtually unreadable high brow technical books written by academics.

Whilst it can never be a bad thing to read books and educate yourself, it is not a necessity for most private investors.  There is plenty of excellent  free advice out there.

The greatest living investor in the World is Warren Buffett.  Fifty years ago he converted a virtually bankrupt little textile firm called Berkshire Hathaway into an investment company. The original cost to buy a share in Berkshire Hathaway was US$19.  To be fair, this was a decent sum back in 1964 – equivalent to US$ 472.56 in today’s money.  However, if you had bought just a single share in Berkshire back in 1964, that share would now be worth US$ 178,156.00.

Warren Buffett has grown the value of the company at an average compounded rate of 19.7% ever year. That is spectacular.

Allied to being a genius investor, Warren Buffett is a very decent and amazingly grounded human being.  He lives in the same house in suburban Omaha that he purchased in the early 1960s and he drives a modest second hand car (though he does have a private jet as well, I’ll think we’ll give him some luxuries).

Every year he writes an open letter to the shareholders of Berkshire Hathaway.  It is usually about 25 pages long and follows a simple format – a review of Berkshire performance, a section conveying much of Buffett’s thoughts and wisdom about markets and investing and then a bit at the end about the Company conference.

In my view, every private investor, or anybody wanting to learn about investing and how to value companies should read these letters, and probably read them over and over again.  They are a gold mine of knowledge. I read them all at least once a year.  You can access them via http://www.berkshirehathaway.com/letters/letters.html

Buffett’s performance for the past five years has fallen slightly below that of the S&P 500, leading some to criticise him and say he’s too old and he’s losing it.  To me that is ridiculous. The guy has a net worth of $60bn – unlike his critics. So who is right and who is wrong?

The 2013 letter came out recently.  If anybody can’t be bothered to read the whole thing, then a read of just pages 19 and 20 will tell most private investors all they need to do if they don’t want to spend all their time reading and researching like Buffett does.

As an interesting crossover into the World of running, I learned from this year’s letter that Berkshire Hathaway own the Brooks running shoe company – makers of my new favourite running shoes.  So I am a fan of Warren Buffett for two reasons!

Another great free resource which is aimed primarily at a UK audience is the excellent Monevator website – www.monevator.com.  This is well worth bookmarking and reading from time to time.  There are normally 2 or 3 new articles each week, including a very useful collection of links to stuff worth reading every weekend. Monevator is a staunch advocate of low cost passive investing.

Of course, I must put in the essential caveat that you must do your own research and only invest money that you are prepared to lose (or not need access to for at least 10 years).  Buffett himself often makes this point in his writings.

Timing is everything, I was lucky enough to start investing just after the 2008 market crash – I realised that valuations were very low and it was probably a good time to buy, provided that we somehow made it through the crisis. As I write, the FTSE 100 index stands at around 6800, just below an all time high (that was achieved in 1999!).  So, as prices are higher, it isn’t such a good time to buy shares.  However, valuations are still around historic averages, company profits are growing, so I intend to keep trickling money into the market each month but I probably won’t make any big bets unless something dramatic happens.

It’s always worthwhile having a little war chest of cash on the side just in case.

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