MR MONEY MAKER: Why investors should keep on Buffetting along like Warren and buy an Exchange Traded Fund on the S&P 500 in the USA
A great investment expert is finally stepping down – at some stage. Warren Buffett has been the longest lasting investment guru I can ever recall. With his nickname The Sage of Omaha, he has developed a great reputation as a canny investor for the longer term.
This has not been on the basis of a media profile and fancy promotion, but on the most convincing method of all – by his huge success in managing his investment company, Berkshire Hathaway.
Essentially, it is just a holding company he acquired in 1965. With his friend and business partner Charlie Munger, he went about building a longer term investment business, which by any measure has been brilliant.
The Sage of Omaha: Warren Buffett love to cast himself as just a ‘good old Joe’ from mid-America
Why Does It Matter?
Buffett, or more to the point his method and behaviour, should be an education for us all and especially those with inflated egos about their prowess. In my view, seemingly brilliant managers are usually just shooting stars and will have a brief flash of glory, only to fade into obscurity.
Achieving success over decades is another matter. Just as an illustration, in 1980 you could have bought Berkshire Hathaway stock for just $275, but by 1995 shares were at $32,500. Not bad, but he was just getting going, By this week, a share was valued at $421,420.
What Should I Do?
Well, we can learn from his experience and his words. He does love to cast himself as just a ‘good old Joe’ from mid-America with his Coke and burgers, and wonderful homespun quotes, but do not be fooled.
His investment acumen has been sharp and effective. His views about private investors are straightforward. Trying to pick stocks is too risky – for most a mug’s game – and do not treat the market as a casino. He is a big fan of low-cost investment tracker funds, usually referred to as ETFs (Exchange Traded Funds). These are usually very cheap and in fact were invented to show up the real cost of expensive Wall Street (and London) fund managers who charged a lot more and frequently could not beat their target index!
Oh, and one other thing – time. Investing involves a longer-term view, as opposed to punting or day trading – that, frankly, is why we have horse racing!
So what should we learn and do with his experience and advice? Well, for me, the most obvious thing to do would be to buy an ETF on the S&P 500 in the USA (Vanguard S&P 500 ETF) – the most important index in the world’s largest economy, and leave it alone for several decades.
Or, of course, you could buy a share in Berkshire Hathaway itself, if you have over $400,000 at your disposal.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.