Warren Buffett: The Importance of Long-Term Planning
I often bring up Warren Buffet – I talk about his approach to the Stock Market, I follow the companies that he invests in, and I also like quoting him quite a bit. If you have been on the Stock Market for a while, this shouldn’t really be a surprise. After all, he is the most famous long-term investor out there and a big source of inspiration for everyone. But this channel isn’t strictly for veterans – we’ve also got quite a few people here who are completely new to the stock market here. And, on more than one occasion, I’ve been asked why I bring him up so much. I’ve been meaning to talk about this for some time now, but, between all of the volatility and stock reviews, I couldn’t find the time to sit down and … So, today, I’ll show you exactly why I believe that Warren Buffett is someone that we can all look up to and learn from.
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So, for those of you who still don’t know, Warren Buffett is one of the world’s most famous long-term investors and most successful investors. Sitting at a net worth of over 78.9 billion dollars, Buffett is known for his ability to consistently turn small amounts of money into massive amounts of money. Already a millionaire at the age of 32, he began buying Berkshire Hathaway stock in 1965 (he was 35 at the time). Thanks to his smart investing choices, Berkshire Hathaway grew into one of the most significant stocks in the world.
But how did he get there in the first place? No, he didn’t just happen to inherit a vast sum of money. He didn’t win the lottery, and it wasn’t just “all luck”. He got to where he is today by having the right mindset and by working hard.
Let’s have a look at one of his interviews from 2005, where he talks about the moment when he first got into the Stock Market.
He bought his first stock when he was 11 years old, during the Q1 of 1942, not long after the events of Pearl Harbour took place. On this fist investment, Buffett spent $114.75 on three shares. He recalls the situation, saying that, if he had put this money into the S&P 500, he’d be looking at about $400 000 today. And yes, he means just from that investment alone. And, of course, this means reinvesting the dividends that they’d pay him. But, let’s be real here – $114 to $400 000 is absolutely incredible.
But, he points out, this isn’t “just about the investor”. It’s not just him, who would be able to do that. Anyone who had 114 dollars at the time could do that, and they would’ve made incredible returns because that’s how the US economy works. In his words, it’s “the huge tailwind” that “the American economy gives to any equity investor”.
Of course, the market has gone down many, many times between then and now. And, naturally, ever time this happened, the media took the opportunity to put out the most outrageous and sensational headlines. Most of the people who listened to the media ended up panicking and selling out of their positions.
You see, this whole “don’t let the headlines convince you to sell” isn’t just my way of doing things. It’s not only my opinion or only my experience. It’s the combined experience of many successful long-term investors who, just like Buffett, have realised that their own. This is a key thing that each and every long-term Stock Market investor needs to understand and accept. We don’t care about sensational headlines, hype or buzz. We care about the facts. About data, numbers and reports.
As Buffett points out, America (and the stock market in general) is a “powerful economic machine”. Now, don’t get me wrong – economies do get shaken up every now and then. There are problems, there is volatility, and there are layoffs. But, at the end of the day, the stock market balances itself out. It always has and (to my understanding) it always will.
So, if we accept this as a solid fact, what can do with it? How can we use it to turn our money into more money?
Well, according to Buffett, you just have to play the long game. And, of course, I completely agree.
If you are a long-term investor, you don’t want to be buying into a position with the intent of selling in a couple of months or even a couple of years. You want to think about the future. The far future. Five years from now. Ten years from now. Or, in his example above, why not sixty years from now?
And this is precisely why he talks about the S&P 500. These companies have earned well over 10% on equity for dozens of years. They have demonstrated that they are capable of achieving consistent results. No matter what happens in the country, no matter the type of administration, they are the businesses that get the job done.
To sum it all up here’s a quote from the same interview – “You get money compounding at that kind of rate underlying your investing, and you get a group of that, and you’ll do well.”
So, here are the key takeaways:
- Anyone can invest long-term (as long as you are dedicated and patient)
- You can (and definitely should) start small.
- You don’t need to be an economic mastermind, you don’t need a specialised degree, you don’t need to wait until you’re a billionaire. You can start right now.
- Volatility and price decreases are not scary, because you want to be buying when things are cheaper (in the words of Warren Buffett – if you know that you’ll be buying groceries, are you going to be happier if they are cheaper or when they are more expensive?)
- There will always be economic problems. There will always be local problems in companies.
- For long-term investments, you should not worry yourself with forecasts or anything of the sort.
- Nobody can really know for sure what will happen with the market. If they tell you otherwise, they are lying (or trying to sell you something). Warren Buffett never worries about forecasts.
If you want to be a good (long term) investor, you want to embrace bear markets. Bear markets mean cheaper stocks. As long as the particular company isn’t giving bad long-term signs, then you should use the opportunity and add more to your portfolio.
In closing, I want to remind all of you that our private investing group is now officially up and running. If you want to learn more about being successful on the Stock Market and build your wealth (and access a ton of exclusive content!), then this is the place to be!
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Thank you all for reading, and until next time!
Recommended books for further reading:
- The Warren Buffett Way
- The Intelligent Investor – Benjamin Graham
- Think and Grow Rich
- Warren Buffett and the Interpretation of Financial Statements
- How to Make Money in Stocks: A Winning System In Good Times And Bad