I read Warren Buffett’s annual report every year. This year it was on purchasing property, which I thought a bit unusual because Buffett is known for purchasing stock. His advice though was simple and profound and applied to any purchase: Find something you like and understand; if it is a sustainable property or business that will make a predictable amount of money for many years to come, buy it and hold on to it forever. At that point, you don’t need to watch it every day because your purchase should be great no matter what the economic conditions are. You see, Buffett never swings for the fences with his purchases; he’s not in it for the quick cash. He also ignores all the so called “experts,” who, by the way, usually do worse than average in predicting success. Buffett sees these experts as “noise” to be avoided.
Buffet’s further advice is to stay well within your circle of competence when investing. If you don’t know how a company works, skip it! If you don’t know how stocks work, then buy a stock index and never sell it (Buffett recommends Vanguard’s S&P500 stock, VFINX). By doing so, you will do better than the vast majority of “experts” let alone the average investor who might think he/she knows how to invest, but is in fact woefully out of his/her circle of competence.
Gee, If I had heard this advice 13 years ago when I started investing, I might still mostly own VFINX, which by the way was the first stock I purchased. Over the past 13 years, I’ve mostly swung for the fences and I have succeeded some of the time, but I have also failed some of the time. I only bought VFINX way back then as a holding place for my cash until I gained competency in how the stock market worked. At that point, my goal was to beat the S&P500 index handily. And for several years I did, but then 2008 happened and I lost all of my gains (so now I put stops on everything – had I done that in 2008, I would be in great shape today). The last time I checked, I was ahead of the S&P500 by only 20% (over a 13 year span). This might sound good, but I was beating the S&P by 8% per year until 2008. Now, I’m merely on par with the average. On the whole, I’ve not done to bad really, I’m still profitable, but if the S&P500 represents the average, and it does, then I can only conclude that I am a very average investor… but hey, at least I’m investing!