Tag Archives: warren buffett

The Paradox Called Warren Buffett

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As I’m struggling to come up with something to write about today (headaches do that to me), my mind drifted to Warren Buffett and the fact that he’s such a paradox in the investment (or business) world.

Warren Buffett and Bill Gates

Warren Buffett and Bill Gates

In many ways Warren Buffett is like the old folklore hero John Henry.  John Henry was a black man and the story goes that the railroads owners were replacing men like John with steam hammers.  John Henry challenged the steam hammer machine to a contest and won, but immediately after winning the contest, he collapsed and died.  He was a hero to the working men of that age!

Warren, much like John Henry, goes up against machines and special computer algorithms, but to date has fared well and continues to win the battle with the computer programs, and without dying at the end.

Another way Mr. Buffett is a paradox is that he’s a solid Democrat.  Although raised a Republican, his wife converted him to the Democrat way.  While I don’t entire agree with his political choice, I’m not necessarily a right-wing Republican either.

I do see a great paradox in that Warren being one of the richest men in the world is solidly in the Democrat camp.  Doesn’t that kind of go against nature, or at least popular public perceptions of the extreme rich?

Another oddity is that Warren doesn’t use his computers as tools to help with his work, instead he uses it to play bridge with remote friends (like Bill Gates) and other games.  But other than that, he doesn’t use computers for investing or business purposes…  Tell me this isn’t a head scratcher!

Yes, in today’s society, Warren Buffett is the equivalent of seeing a real unicorn or Pegasus.  Perhaps this is why lunch meetings with him go for millions of dollars on eBay each year.

Personally, I fix it interesting that his consumption habits (coke, cheeseburgers, etc), isn’t really far from the typical middle class style of eating.   so here is one of the richest men in the world eating normal foods that I would eat when I go to lunch…

Can you think of other interesting paradoxes about Mr. Buffett, if so, please comment!  We would love to hear them!

Thanks,

MR

 

 

Is Buy And Hold Investing Dead?

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401k History

401k Performance History

 

On TV and other channels of financial communications, I keep hearing that the “Buy and Hold” strategy is dead or no longer works, but I beg to differ!

The chart above is my 401k balance over the past 8+ years, and as you can tell, my overall balance has almost doubled (97.6 %)!  Now granted my 401k investments are in mutual fund which is bit different from buying “blue chip” stocks, but I think most investors do buy and hold mutual funds instead of individual stocks, so hearing such messages adds to the confusion.

Note in the chart above, that the reason I have only 8+ years of data is because that is as far back as I can go with the 401k company that provides information about my 401k balance.  If the data went back to 2000, my return would even be higher.

Buy and Hold

Buy and Hold taken as a mindlessly buying and holding stocks without thinking, is not the best approach.  But with mutual funds, it’s different!  When you buy a mutual fund, there’s (in theory at least) a smart fund managers running the fund for you or an index that weeds out the poorer company performers.  So you are paying them to do the thinking/indexing for you.

Buy and Hold Deviations

At my 401k’s core investment philosophy is the “Buy and Hold” strategy!  But I have taken some liberties with my 401k account.  For instance, during the downturn of “The Great Recession“, my first deviation was that I bumped my 401k contributions to the maximum that was possible.  So I was able to buy some shares in the mutual funds in my account at a deep discount (good deal!).  This is a stealthy way of buying low (aka timing the market)!

A second deviation from the “Buy and Hold” strategy is that I like to play one of the mutual funds that’s in my account occasionally.  By play, I mean trying to buy low and sell high (again timing the market).  While this isn’t advisable for most, I know this one particular mutual fund very well!  In fact, I know it so well that I’m able fairly accurately guess what direction it takes the majority of the time.  This is the wild part of my 401k investment (still very conservative though) and just a very small part of my portfolio that I use to provide a bit of extra interest for myself so that my 401k is more fun for me.  This approach probably has raised the overall cumulative value of my entire portfolio by a mere 1 or 2% at the most over these past 8+ years.

Not Following the Herd

During the downturn in 2008, even some of the financial gurus lost faith and were telling people to move to cash.  Such a move is very anti-“Buy and Hold” strategy.  Perhaps this is why the same group of “financial gurus” say that the “Buy and Hold” strategy is dead?!

I’m not going to mention names, but there were a few highly influential financial gurus that were telling their audience to sell their stocks and other financial investments practically at the market bottom!  It was one of the few times in life where I was yelling at the TV (very, very rare),  directing my anger at one of the “gurus”, yelling that this was the worst time to move to cash!  While the TV guru didn’t heed my advice, I felt better!

Champion investor Warren Buffett believes that the “Buy and Hold” investment strategy still has legs!  Perhaps that’s why he is making money instead of providing financial advice…  How can the financial community go against the best evidence of a “Buy and Hold” strategy via Buffett when the world’s greatest investor says that it work?  Isn’t that kind of telling former boxing champ Mike Tyson that he can’t hit hard and that it’s impossible for him to knock someone out?

Do you think Buy and Hold is dead?  What’s your take?

 

-MR

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3 Videos On Investing, Including Warren Buffett’s Technique

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I decided to include these great videos on how the stock market works or how investors trade on the market.

I came across this incredible entertaining, but old video on how the stock market works.  It’s a cartoon, but has a fun, warm feeling to it.  It’s from the 1960s, and it’s very interesting to see how it was back then versus today.  I think you’ll enjoy it, check it out:

Now as a contrast, consider the flow of this next video where a day trader has a good trading day. It’s amazing how fast the market moves now, what would have taken hours and perhaps days in the 60s is now performed almost instantly.  That’s the power of technology used to make a liquid market!

And finally a video on the most successful investor of the present times, Warren Buffett!  I think as you watch this, you’ll realize that liquidity, while important to Buffett, doesn’t really have a bearing on when he buys or sells.

Surprisingly, Mr Buffett seem more in line with the 60s video than that of the tech savvy day trader video!

Actually, it’s not that surprising since Warren Buffett doesn’t even use a computer to make trades.  From what I read, Warren uses his computer mainly to play an online bridge card game.

In conclusion, I think for the best financial advice it probably would be best to find a few investing sources and experiment with them until you find one that works best for you.

I hope you enjoyed the three different but all interesting videos!  I know I did!

-MR

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Big Crash, Time To Invest?

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Last week’s big gains was washed away by the stock market’s harsh dip this past Friday (DOW was slipped -261 points).

The market seems so choppy, is it time to packup the wagon and head to the hills?

I’d say no… Why?  Because Warren says so!

Warren Buffett exclaimed that he doesn’t believe a double dip scenario is in the work, nor is a great depression.  He then goes on to say that all of the 80+ businesses that his company Bershire Hathaway owns are doing better than in 2008, plus he said that some of the companies are even hiring new people on board (albeit at a slow rate).

So why should I believe what Warren Buffett says?  Afterall, he continuously states that he can’t predict the future movement of the markets!

Well, based on the biography “The Snowball” written about him, he doesn’t make predictions lightly.  Plus, he has empirical evidence (the pretty diversified businesses that his company owns), that gives him first hand information on the state of the economy!

So if Warren said it’ll be okay and we are coming out of the recession, and we are not going into the double dip scenario, I tend to listen with perked up ears!  Time will tell, but if I were a betting man, I’d definitely bet on Mr. Buffett above all others! 

Afterall, his stock Bershire Hathaway cost over $115,000 for just one share!  When Warren took over Bershire Hathaway, it was valued around $19 for one share.  So Warren must know a thing or two!

-MR