Arguably the most successful investor of our age whose name is synonymous with the very act of investing, Warren Buffett is known the world over for his staggering successes as well as folksy demeanour. In his eagerly anticipated annual shareholder letter, the Berkshire Hathaway chairman this week shares some sage but startlingly simple investment advice.
Stripping out all the high-browed jargons and toning down on financial rhetorics, Warren Buffett reflected on two small parcels of real estate investment he made to “… illustrate certain fundamentals of investing:
- You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognise [sic] your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
- Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
- If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is...
