Buffett's investing basics: Easily imported to families
Published: Monday, May 07, 2012, 11:42 AM Updated: Monday, May 07, 2012, 8:07 PM
From Warren to Liz to us - advice we can all use
You don’t have to be Warren Buffett to make good financial decisions for your family. But his advice just might help. In these days of insane student loan debt ($1 trillion, and that’s more than all of the credit card debt in the country) and fears about having enough money for retirement, we not only need to know about managing and investing money ourselves (or getting the right help) but we also must share our knowledge with our kids.
FOX Business Network anchor Liz Claman, who lives in Edgewater with her family, anchors Countdown to the Closing Bell (3 PM/ET) and After the Bell (4 PM/ET). And when business news is being made, she’ll go to the source, as she did this past weekend when she attended the Berkshire Hathaway annual meeting in Omaha, led by CEO Warren Buffett.
Over the years of covering Buffet, she has gotten to know him pretty well, and has talked with him about what it takes to be a smart investor -- even on a small scale. Here's some advice she has gleaned from the Sage of Omaha that might be useful to us as parents.
Educate yourself! I know, I know, there’s wash to do and meals to cook and errands to run and children to raise. But in your spare moments between the stuff of life, you can emulate Buffett's investing style, Claman says. "He looks at buying great companies that have a ‘moat’ of competitiveness around them. Are they the best or at least in the top 2 in what they do? Are they run by passionate managers? With the internet, it’s easy enough to answer these questions." Claman adds, "Anyone who followed his advice in the '70's and bought Coca-Cola stock is richer for it. Same with railroads he bought into back in 2006. Has he made mistakes? Yes. But his track record over the long term is undeniable." And that brings Claman to another point.
Be disciplined. Claman has learned that when Buffett is considering a stock, he never overpays for it no matter how much he wants it. What are his rules? Look at the price-to-earnings ratio, how solid the management is, how much cash the company brings in from its operations and then make sure the price isn't elevated beyond what's reasonable. As Claman says, "He sticks to his rules and never strays. And one of his favorite rules is 'Buy good stuff at cheap prices!'"
Look for the ugly ducklings. Buffet looks for those less than attractive stocks he just knows will eventually turn into beautiful stock swans. "Liz, you never want to buy the quarterback who just won the Superbowl. He's too expensive. You want to buy the guy in the hospital bed with his leg in a sling because you know he's cheaper and the odds are, he'll get better and blossom."
Learn how to communicate. If Buffett couldn't explain himself to investors, he would have never been as successful as he is. "It shocks a lot of people to know that Buffett was incredibly shy and lacked confidence even into his 20s. He finally forced himself to take the Dale Carnegie course, 'How to Win Friends and Influence People,' because he realized the only way he'd be truly successful in life -- even with his natural ability to allocate financial assets -- was if he could communicate to potential investors. It took him time to get up the courage to finally enroll in the course but it's the only document he has framed and up on the wall in his inner office. Not his diplomas, not any awards, just the 'Warren Buffett successfully completed Dale Carnegie's course.'"
For more on Buffett's thinking, here's one of several interviews Liz Claman conducted with Buffett in the past few days; others include Charlie Munger, also of Berkshire Hathaway and Bill Gates.
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