Sage advice on Investing

In honor of legendary investor Warren Buffet, we have compiled some of his most memorable quotes containing great investment lessons.

Sage advice on Investing

Warren Buffet is a renowned  American investor and CEO of Berkshire Hathaway. Considered one of the most successful investors in the world, he is worth of over $100 billion (after donating $37B) and is the world's seventh-wealthiest person.

He is referred to as the "Oracle" or "Sage" of Omaha.  At 90, it’s safe to assume that his retirement is eminent. In honor of this legendary investor, we have compiled some of his most memorable quotes containing great investment lessons.

“You can’t make a baby in one month by impregnating 9 women” Patience is required in investing. In the near term it is nearly impossible for investors to predict in what direction markets will move. One thing that investors need to understand is that there is a big difference between trading and investing. Daily trading is likely to be characterized by high turnover (selling and buying), whereas investing requires more patience.

It's only when the tide goes out that you discover who's been swimming nakedMarkets go through cycles over time with some periods being more fruitful than others. Investors can sometimes get overly excited and take on more risk than is ideal. It is when markets fall rapidly that such investors are exposed. Given that investment risk and investment returns are two sides of the same coin, in such period’s investors may be left blushing with negative returns.

“If past history was all that is needed to play the game of money, the richest people would be librarians” The amount of historical data and information increases every day. As humans we generally tend to look through history when trying to look ahead. In other words, it’s in our nature to look at the rearview mirror which is much clearer than the windscreen. This is of course easier than to analyse each future scenario as a separate event when making investment decisions. This is a suboptimal way of investing and simply copying and pasting from the history books is likely to lead some financial pain.

Economic performance around the world

REGION

GDP Growth rate

Inflation

Interest Rates

Botswana

-4.1% (Dec-20)

3.2% (Mar-21)

3.75% (Apr-21)

USA

0.4% (Mar-21)

2.6% (Mar-21)

0.25% (Apr-21)

Eurozone

-1.8% (Mar-21)

1.6% (Apr-21)

0.0% (Apr-21)

UK

-7.3% (Dec-20)

0.7% (Mar-21)

0.1% (Mar-21)

China

18.3% (Mar-21)

0.4% (Mar-21)

3.85% (Apr-21)

“We always live in an uncertain world. What is certain is that the United States will go forward over time.” Last year at the peak of the pandemic, financial markets had lost around 30%. To date most markets have recovered and are even higher than before.  From all available history, financial markets generally move up over time. This means staying invested in the markets is a tried and tested investment strategy. Case in point, an investor who wasn’t invested in the US market last year on the best 5 trading days would have ended 2020 with a return of -22%. On the other hand, an investor who had remained fully invested in 2020 would have ended the year with a return of +12%.

“Do not save what is left after spending, but spend what is left after saving.” Many times we advise our clients to increase their retirement contributions. Most people who do not retire comfortably are those who regarded retirement planning as an afterthought. The desire to consume now will always be enticing, but small changes add up over time to draw us closer to our investment goals.

"The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd." Financial markets performance is an aggregate of all participants’ views. Because investors are human, we can at times allow our emotions to cloud our judgement which leads to too much excitement or fear. In other words, financial markets can overreact to both negative and positive developments. In such instances when people have decided to outsource their thinking, the ability to remain calm and make sound decisions without allowing fear or greed to influence you is invaluable.

"When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients." Often overlooked by clients, investment fees compounded over time can have a sizeable impact on an investors final pot size. Over the past two decades fees have been declining with the more and investors opting for lower cost investment solutions. Bottom line, Costs Count!

"Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick "no."  In a world that is used to instant gratification, it is easy to see why we have all made bad decisions hoping for a quick fix. Maybe it was that magic weight loss pill. Or that once in a lifetime investment that promised a monthly guaranteed return of 10%. Ponzi schemes and all sorts of financial scams prey on our desire for fast solutions, but all of them tend to end in a painful lesson.

How have financial markets performed over the last 12 months to March 2021

1 Year Botswana Local shares (TR)

1 Year Botswana Bond Performance (Fleming Bond Index)

1 Year money market (BWP) (Overnight Call rate +2%)

1 Year MSCI ACWI (BWP)

1 Year MSCI Emerging Markets

1 Year change Botswana Pula vs US$

 

-9.42%

-0.05%

4.94%

46.56%

46.84%

8.95%

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Strategic Wealth is a Botswana retirement funds investment specialist.  The firm is 100% citizen and female owned and committed to improving retirement fund knowledge in Botswana.  Please send all comments or questions to: info@strategicwealth.info.

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DISCLAIMER:  While every effort is taken to ensure the accuracy of the information used in this column, Strategic Wealth accepts no liability for errors or omissions.  Information is provided for general educational purposes and is not to be treated as financial advice.  Investors should consult professional advisors before taking any action.  Not all statements necessarily reflect the views of Strategic Wealth.