WE should shoot for the stars. Even if we fall short, we might yet end up with research colonies on the Moon and Mars!
I like reading about Warren Buffett, Earth's greatest investor. And I love reading Buffett's own writing on life, business and investing.
I know I'm not alone in my admiration for the 90-year-old living legend. After all, you began reading this column most likely because you're interested in what Buffett has to teach us. We aren't alone.
Hundreds of millions of investors and wannabe capitalists are intrigued by this rarity: a consistently successful top-notch billionaire who not only runs gargantuan businesses well but also explains with crystal-clarity profoundly valuable — actually invaluable — business lessons to anyone willing to search out his counsel.
Sadly, all the reading in the world won't transform any of us into a Buffett clone. It certainly won't make us billionaires.
Each of Earth's 2,095 USD billionaires (as at March 18, 2020, when Forbes magazine finalised its 2020 list, and coincidentally when Malaysia began its Movement Control Order seven months ago in our bid to save lives in this raging COVID-19 pandemic) is a unique individual in his or her own right.
Yet it's possible we lesser mortals can use some of Warren Buffett's lessons over several decades to at least become millionaires.
Even if we fail in joining the rarefied ranks of USD millionaires, we might qualify as RM-denominated millionaires, which is a fairly significant milestone to try and reach because RM1 million is often the starting target net worth for many middle class Malaysians who are toiling to one day retire in comfort.
In my financial planning practice, about 90 per cent of my clients have final retirement funding goals in the RM500,000 to RM20 million range.
Even though learning from those who are smarter and more successful than we are is humbling, it can prove enriching.
Toward that end, Buffett stands apart from his 10-, 11-digit, and 12-digit net worth billionaire cohorts because of his willingness over more than half a century to write understandably and transparently on his unchanging principles — but evolving thoughts — on how the world of money works.
I've written extensively on Warren Buffett and his investment lessons over the last five Sundays in Money Thoughts. You're welcome to dip (or dive) into them here: www.nst.com.my/authors/rajen-devadason
LESSONS TO LEARN
The investing world pays close attention to Buffett's annual letter to the shareholders of his investment holding company Berkshire Hathaway. We should, too. Here are snippets:
In Buffett's 2010 letter, he wrote: "Yearly figures, it should be noted, are neither to be ignored nor viewed as all-important. The pace of the earth's movement around the sun is not synchronised with the time required for either investment ideas or operating decisions to bear fruit."
Lesson 1: Great investment ideas are rare. Therefore, if you identify a great stock to buy at a time when its near-term prospects seem abysmal, you might be able to buy it for pennies on the dollar.
Do your own research and thinking before becoming wedded to an investment idea, though. Once you're sure you're on to a great investment, buy the stock (or a fund that does such buying for you across a diversified range of, hopefully, decent prospects).
Then exercise patience. And for as long as you believe in your idea, embrace long periods of low prices as heaven-sent intervals that should allow you to increase your stake.
From his 2012 letter: "... the immediate future is uncertain; America has faced the unknown since 1776.... American business will do fine over time. And stocks will do well ... since their fate is tied to business performance."
Lesson 2: Err on the side of optimism. World War I ended after four years in 1918; World War II ended after six years in 1945; and this pandemic has been referred to as World War C. I don't know when it will end, but end it will. Good times will return.
From Buffett's 2016 letter: "Over time, stock prices gravitate toward intrinsic value."
Lesson 3: It is impossible to gauge a business's intrinsic value with great accuracy. But we don't need a weighing scale to visually assess if a man is obese or a lady is gaunt.
Buffett's mentor was The Father of Security Analysis, Benjamin Graham. Research all you can on what Graham taught Buffett in the 1950s about a stock's (and thus its underlying business's) intrinsic value. Buy below intrinsic value and sell well above it.
From his most recent letter, 2019's published on Feb 22, 2020, Buffett underscores a lesson that investment market historians have learned from scrutinising centuries of relative asset class performance data: "... equities (are) the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware!"
Lesson 4: A prime tenet of financial planning that helps with retirement-funding programmes is that the older people get, the less volatility they want to stomach within their portfolios.
However, people are also living longer, both in general and in retirement. As such, keeping at least some of everyone's portfolio in equities is justified because of the exposure business ownership grants us to the world's (generally) expanding productive capacity.
© 2020 Rajen Devadason
Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com You may follow him on Twitter @RajenDevadason.