Warren Buffett is one of the world’s richest (and most generous) men, known for being one of the most successful investors ever. So when the Sage of Omaha dishes out some wisdom on where to put your money, it’s always worth a listen.
Unsurprisingly, given the guy pretty much invented the idea of investing for long-term value rather than making a quick buck, Buffett’s annual letter to Berkshire Hathaway shareholders is big on sensible investments with a long view.
In the letter, an excerpt of which has been published by Fortune magazine, Buffett mentions two relatively tiny but ‘instructive’ investments, both bought after asset bubbles burst.
The first is a 400-acre farm in Buffett’s home state of Nebraska, which the 83-year-old bought for $280,000 in 1986. Buffett said he only recently visited the farm for a second time, but it is now worth five times that. And he still knows nowt about tractors.
The second investment is a retail property next to New York University which Buffet in 1993, which now pays out 35% of the initial investment each year without him having actually ever seen the place.
‘What the economy, interest rates, or the stock market might do in the years immediately following - 1987 and 1994 – was of no importance to me in determining the success of those investments,’ Buffett said. ‘I can't remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.’ That might explain why Buffett has tweeted a grand total of four times…
Here are Buffett’s five golden rules for investing:
1. ‘You don't need to be an expert in order to achieve satisfactory investment returns’
But recognise your limitations and, if promised quick profits, just say no kids.
2. ‘Focus on the future productivity of the asset you are considering’
If you can’t estimate its future earnings forget about it. ‘Omniscience isn’t necessary’ either, which is always nice to know.
3. ‘If you instead focus on the prospective price change of a contemplated purchase, you are speculating’
Relying on short-term price changes is like flipping a coin - you’re never going to consistently make a profit.
4. ‘Games are won by players who focus on the playing field - not by those whose eyes are glued to the scoreboard’
Stay away from the stock market - Buffett even recommends ignoring the prices of your investments on weekdays .
5. ‘Forming macro opinions or listening to the macro or market predictions of others is a waste of time’
Listening to other people could actually be ‘dangerous’ Buffett thinks, as it might get in the way of the facts. Which would leave you more time to enjoy the billionaire’s favourite meal of a burger and cherry coke. Nom.