Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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How to think about investments?

Posted by Muthu on May 6, 2018

At times, for few weeks or months, I don’t get any ideas to write. It’s close to a month since I’ve written to you. Request you to bear with me during such dry spells.

Yesterday was the annual meeting of Berkshire Hathaway. Adam Blum has transcribed notes from the meeting. I found the Buffett’s introductory speech to be very good. Investment perspective makes all the difference in wealth creation. Read and follow what Buffett says below. Then it would be very difficult not to succeed.

“Here’s some personal history, with The New York Times front pages from March 10-12, 1942. You can see I’m a little behind on my reading. This was three months after we got involved in World War II, and we were losing, and headlines were full of bad news about the Pacific. The price of the newspaper was 3 cents, incidentally.

On March 10, the stock market was reflecting this news. And I’d been watching City Service preferred stock for a while. It was $84 a share the previous year and $55 a share at the beginning of 1942, and then in March it was down to $40 a share. On the 11th, I told my dad I wanted to buy three shares. That was all the money I had at the time – I was only eleven years old. So he bought the shares for me.

On the next day, the stock market was down 2.28% and broke 100 on downside, which is the equivalent of a 500-point drop. I was in school wondering what was going on. My dad had bought me the stock at $38.25, which was the high for day, and it was down to $37 by the end of day. Even though the war looked bad until the Battle of Midway, the stock did well and was called for over $200 a share by City Service. But I’d sold at $40 for $5.25 gain after watching it go down to $27. What’s the point? Imagine myself on March 11, 1942. Things were looking bad, but everyone knew we’d win the war, and the system had been working well since 1776.

Investing $10,000 in an index fund in 1942 to own a piece of American business would now be worth $51 million, and you wouldn’t have had to do anything. You wouldn’t have had to understand accounting or look at quotations. All you had to do was figure that America would do well over time, and American business would in turn do well and overcome difficulties. You didn’t have to pick out winning stocks or know when to buy or sell. The overriding question is, ‘how is American business going to do over your investing lifetime?’ If you had taken $10,000 and listened to the prophets of doom and gloom and bought 300 ounces of gold instead, today that still would be 300 ounces of gold.

You could go down to the safety deposit box and look at it and fondle it, and it wouldn’t produce anything. That gold would be worth $400,000 today. If you’d decided to go with a non productive asset versus a productive one, it is one hundred times the value difference. Every dollar earned in investing in the American business was matched by less than a penny gained by investing in a ‘store of value’ like gold over the same period.

We have the greatest tailwind you could ever imagine in this country. There’s no comparison trying to jump in and out of stocks and pay investment advisors and invest in non productive assets. If everyone had just bought in, your friendly stock broker would’ve starved to death, and you could’ve gone to his funeral to atone for it. You do not have to know about accounting and terminology and what the Fed is doing. It’s about a philosophy and forgetting what you don’t know how to do.

One Response to “How to think about investments?”

  1. Great Post. Thank you for the link to Berkshire’s meeting notes

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