Our last post featuring quotes from the world’s most famous investor, Warren Buffet, was a popular one so here’s some more nuggets from the oracle of Omaha for all you aspiring Warrens out there!
‘Do not save what is left after spending but spend what is left after saving’
This is something of a mantra for many of our financial adviser who understand more than most the importance of establishing a savings habit as early as you can. The majority of us are on limited incomes and faced with unlimited temptations to spend so saving takes a little effort. Obviously you need to ensure that you have the basics such as mortgage, rent, bills and food covered each month but before you go and splurge what is left over on clothes, gadgets or holidays you need to prioritise saving.
Why is saving so important? Because it gives you control over your life. An emergency fund of savings can act as a safety net when faced with financial challenges caused by a job loss or illness. Savings can also help you achieve your financial goals in both the short and long term whether they be buying a car or first home or enjoying a comfortable and financially secure retirement. The latter might sound like a long way off to you but with our life expectancies increasing, the longer your savings have compound interest working on them to make you free money the better!
Get into the savings habit now and take control of your finances. I guarantee you won’t regret it.
‘Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.’
The advice being given here is to invest in high quality businesses. How many investors were seduced by dot.com businesses in the late nineties whose stock skyrocketed simply by prefixing the company name with an e- or adding .com on to the end? The lucky few flourished but many crashed and burned with investors making massive losses. Pets.com is an infamous example with stock nosediving from $14 to less than $1 in just a few months and the company folding a mere 9 months after it floated having burned its way through $147mn! When investing, if it seems too good to be true, it probably is, so avoid gimmicky companies and go for stocks in businesses and industries which are tried and tested. And of course make sure you diversify so you don’t have all your eggs in one basket.
‘No matter how great the talents or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant’
This amusing quote is a call to view investing as a long term game. Building your wealth to fullfil your financial goals such as a healthy pension pot is not something that you can do overnight, you need to be in it for the long haul. The good thing about investing over a long time period is that you don’t need to have the expertise of Warren Buffet to do it. Forget about perfect timing and trying to work out exactly the right moment to buy and sell individual stocks and certainly don’t waste any emotion worrying when stocks fall abruptly, as they have this month. Keep focused on a distant time horizon, reinvest your profits in the form of dividends and you will see your portfolio grow slowly but steadily. Of course, you will need to review your portfolio from time to time and possibly make adjustments to your asset allocation but you can ignore the day-to-day noise coming from the markets and schedule regular reviews, an approach which takes the emotion out of investing.
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