Some might ask whether a billionaire could have anything relevant to say to the average consumer. However, Warren Buffett’s February letter to investors at Berkshire Hathaway, looking back over his 50 years at the helm, highlights his own financial hits and misses as he struggled to get ahead.
You can read the entire letter here.
1. Take care around vested interests
“Don’t ask the barber whether you need a haircut,” notes Buffett. Watch out for potential bias. If the risk posed by inaction is low, the best move may be to do nothing until you yourself are sure it is time to move on a deal or other financial option.
2. Two plus two will always equal four
Beware of claims that something or other might be a game-changer; use your own common sense and do the maths. Meanwhile, it won’t hurt to simply wait and see what happens. “When someone tells you how old-fashioned that maths is -- zip up your wallet, take a vacation and come back in a few years,” he says.
3. Don’t reject a deal just because you expect more
Buffett turned down a chance to sell certain shares in 1964 because the offer was an eighth of a point lower than he had expected. “I bristled … and didn’t tender. That was a monumentally stupid decision,” he writes, especially as the price was still 50% above the cost of his original purchases.
4. Beware of following the herd
Fear of being left behind can see you copying others’ mistakes. Buffett criticises those that can’t turn their back on business eagerly underwritten by competitors. “That old line, ‘the other guy is doing it, so we must as well’, spells trouble in any business,” he says. Buffett is famed for his contrarian views.
5. Invest in quality – if the price is right
A low-price offer may be a false economy; it can make more sense to think about longer term value. “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices,” Buffett affirms.
6. Prepare for the unexpected
Much of Buffett’s advice, as above, is conservative; no one can predict what tomorrow will bring. Will there just be more of the same, or a catastrophe? “I felt no special apprehension on September 10, 2001,” he adds, referring to the eve of the September 11 terrorist attack in the US. Instead, you should keep something by to protect yourself against unforeseen events.
Is Buffett right? Do you take a conservative or even a contrarian approach to your finances, and has it paid off? Send us your views using the contact us form or tweet them to @eZonomics.