You don’t need to own Berkshire Hathaway stock to benefit from the investing wisdom of the world’s richest man.
His annual letter to Berkshire shareholders explains just how to invest like Warren Buffett. (It also includes more jokes than the average CEO manages in a year!)
Here’s five highlights from Buffett’s latest letter to get you started.
One sign of a bear market bottom is said to be that cash is king.
Such times may be a good opportunity to buy shares for the long-term.
In contrast, in bull markets cash is trash.
At such times, the authorities have usually raised interest rates to try to dampen the boom. Yet everyone is greedy, sending stocks into bubble territory. You’ll even hear the phrase ‘cash is trash’ being used in newspapers and on TV.
Every Saturday! Weekend thoughts, and money and investing articles from around the web.
The UK Government stands to raise £1.5 billion from the one-off banker’s bonus tax. The Treasury only counted on getting £500 million.
If you recall, this bank tax was meant to persuade the banks to build up their capital reserves by retaining 2009’s windfall profits (which at investment banks were gained trading the broken markets and Government special measures that the banks themselves caused).
Policymakers – who work partly out of a sense of civic good – underestimated bankers, who are driven entirely by money. Bankers paid the bonuses anyway. It’s shareholders who’ve lost out.
Time for a new approach: Hiring Chinese bankers.
The intersection of money, consumption, and happiness is a crucial topic.
Perhaps it’s our growing understanding of these truths that’s led to the new cultural trend (or revival) of seeking experiences instead of chasing money or material goods.
Ditch the consumer lifestyle, and consume life instead!
Best-selling writer Tim Ferriss has based his career around the idea you should generate just enough money for travel or other experiences – which he explicitly contrasts with grinding away to pay down a mortgage for 30 years.
Then there’s Man Vs Debt – one of a posse of leading bloggers who’ve forsaken material goods in favour of experience and travel.
In a recent debate on the Financial Samurai blog, I was surprised how nearly everyone favoured spending money on experiences over stuff.
Don’t get me wrong – I don’t like spending money on either! When salesman see me coming, they scratch their chins awkwardly and sidle off to extract haemoglobin from nearby stones.
Yet I do question the new wisdom that says buying happy experiences is always better than buying something solid and real that will potentially bring you happiness today, tomorrow, and beyond.
It’s a more difficult question than it looks. If we spend money on, say, travel:
A week lasts for the blink of an eye, in comparison to a 70-year long life. The memories are forever – well, what you can remember are – but they cannot take you back to truly re-experience the beach for even a microsecond.
Why not buy a posterbook for 1/1,000th of the price, memorize the pictures, and try to convince yourself that you went?
I jest, but only a little. There is something profound at the heart of this debate.
Let’s bring in an expert, Daniel Kahneman. Perhaps the world’s greatest living psychologist, Kahneman won the Nobel prize for Economics for work on behavioral economics – exploring the irrational ways we make decisions about risk.
Kahneman recently gave a TED lecture about how we experience happiness very differently to how we later remember it. This difference has consequences for how we run our lives.
Beware: This video could change more than just how you spend your money.
You’ll forgive me for not writing a snappy three line summary of what this video tells us about how to spend money. I’m not about to pick up the Nobel Prize for solving one of mankind’s deepest mysteries in a blog post.
But I do find this subject and Kahneman’s lecture fascinating.
My first thought is that what matters most is structuring your life in a way that’s important to you, and then using money to create not just memories or even happiness in the present, but also a future you can look forward to, and a sense of satisfaction about your past.
Like this you’re getting more from your money than just a memory – you’re getting aims, goals, and achievements, too.
But that’s me – I naturally take a long-term view on life, and buy future income like other people collect stamps.
Your memory mileage may vary!
Please do share your thoughts on whether the fleeting long-term memories from an experience are really worth the price of entry – or whether you’re better off buying a motorbike – in the comments section below.
(Image by Wonderlane)
