Warren Buffett is described as the most successful investor of the 20th century and one of the world’s wealthiest and most influential people. Each year since 1965 he has published his annual letter to shareholders, a document considered by many fund managers to be investment gospel.
For the past five decades, these letters have become scripture not only for value investors, but also for anyone interested in learning how to become a better businessperson, manager, or a more effective leader.
Each year thousands of Buffett admirers, aspirers and affectionates then flock to Nebraska to hear what the “Oracle of Omaha” has to say in person. This year in his annual letter to shareholders and lead-up to the event he has shared some diet tips, travel tricks and investment advice for the year ahead.
Here are our 5 favourite Warren Buffett tips in 2015;
1. Eat like a six-year-old
Warren Buffett recently admitted to Fortune Magazine that he drinks at least five Cokes a day and eats “like a 6-year-old” to stay healthy. Buffett, who owns AU$20 billion worth of Coca-Cola shares and has an accumulated wealth of almost AU$92 billion, drinks three cans a day and chugs two more each night to keep him awake.
“I checked the actuarial tables, and the lowest death rate is among 6-year-olds. So I decided to eat like a 6-year-old,” he said. “It’s the safest course I can take.”
2. Travel on a budget
Buffett praised Airbnb, one of the most disruptive technology businesses in the world. For an investor who has famously avoided new technology and internet businesses, this travel advice has surprised many. Here’s what the eighty-four year old had to say;
“Airbnb’s services may be especially helpful to shareholders who expect to spend only a single night in Omaha and are aware that last year a few hotels required guests to pay for a minimum of three nights. Those people on a tight budget should check the Airbnb website.”
3. Don’t ask the barber whether you need a haircut
Buffett took a few of swipes at the financial industry in this year’s annual letter. The first is a brilliant zinger related to the tendency of bankers, advisers and stockbrokers to recommend ‘action’ (buying or selling with them) when the best course of action is usually to do nothing.
“Sitting tight is seldom recommended by Wall Street. (Don’t ask the barber whether you need a haircut.)”
4. Keep your investment fees low
While good fund managers exist, it takes 23 years of returns data to have 95% confidence that a fund manager’s performance is due to skill and not luck.
“Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool’s game.
There are a few investment managers, of course, who are very good – though in the short run, it’s difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship.”
Warren Buffett’s own company Berkshire Hathaway, which charges no fees, has now been beaten by the US stock market index for 5 of the last 6 years. This demonstrates how difficult beating the market really is, even for the greatest investor in the world.
5. Index funds are your best bet
Buffett once said “Keep all your eggs in one basket, and watch that basket closely”, but he has recently changed his view on this one, strongly advising in favour of low-fee index funds rather than managers who invest in a concentrated portfolio like he has done.
In 2014 Buffett announced that when he dies, his estate will only be invested in low-fee Vanguard index funds, stating “A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money.”
This year he went one step further, recommending that investors avoid short-term trading, never borrow to invest, stop paying advisers high fees, buy a diversified index portfolio and simply set-and-forget for the long term.
And we couldn’t agree more!
“Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”
Main image: DonkeyHotey, via Flickr