What We Can Learn from the Oracle of Omaha - Key Takeaways from Berkshire's Annual Meeting
Warren Buffett’s annual meeting always provides a treasure chest of lessons for investing and life. Berkshire Hathaway’s shareholder meeting was a few weeks ago and here we share some takeaways and thoughts:
- Perhaps the best quote came from Buffett’s longtime business partner Charlie Munger. When asked about building wealth and living a better life, Munger said, “The great lesson in life is to get toxic people the hell out of your life…..And do it fast.” For investors, this can relate to the daily news on the markets. Much of it is sensationalized….and much of it IS toxic! You see, there will always be a reason not to invest. Every day someone will be publishing a headline about the coming “crash” or crisis;” this type of click-bait brings in an audience, and unfortunately, often influences investors to make irrationally emotional decisions. But the committed, patient, disciplined investor who stays the course in tried-and-true strategies (….such as the dividend growth strategy that we discussed in our last blog) today is collecting high single-digit annual percentage returns from their dividends alone!
- Buffett said, “People are trying to outsmart each other in arenas that you don’t have to play in.” Absolutely. There are so many complicated investments being pushed in the marketplace. If you can’t really understand them, don’t hesitate to just put them in the “too-hard-to-decipher” pile---and move on! There are already plenty of simple investments to choose from to build a solid diversified portfolio to help any investor achieve financial independence.
- Don’t ignore the power of incentives on Wall Street. If you can figure out incentives, you often can very easily predict behavior. This was truly a shot across the bow to Wall Street! But it is 100% true. When dealing with any financial firm, investors should be asking questions like, “How are you compensated? How do I know what you are recommending is best for me…or for you? Do you have specific revenue/sales/commission metrics you must meet every year? Does private equity own or invest in your business?” When you know the answers to these questions, then you have the complete context for what advice you are getting. And in some instances, you will understand why a specific product or investment is being recommended—Hint: It may not be in YOUR best interest.
- Involve your beneficiaries in estate planning. This can be awkward and uncomfortable and is often overlooked, but it is immensely important. Buffett doesn’t sign his will until he has discussed it with his children. This is the best way to avoid any problems when he passes. After all, we all want our children and family to get along; communication ahead of time is key.
- When asked about the future of value investing, Buffett answered, “Value investing will be fine; people will continue to do dumb things.” This lesson goes hand-in-hand with “avoid stupid and big mistakes.” Successful investing takes time and patience. We must always “stay in the game” and avoid the mistakes that set us back too far; investing in assets that have value (relative to their price and earnings) allows us to do just that.
- The world is—overwhelmingly--too short-term focused. We are now only in May and yet there is constant talk and emphasis in the media about “year-to-date” returns. As we have preached many times YTD returns are absolutely meaningless unless you bought all of your investments on January 1st! One year in investing can be as insignificant as one game or even one season for an athlete. We don’t judge our favorite athlete on a singular period of time; instead, we draw a conclusion on the complete body of work over time. We should view investments the same way.
- Avoid all debt except mortgage debt; spend less than you earn. Can you get any simpler advice from a 92 and 99 year-old with unmatched investment success????
- Write the obituary you would like to have and then try to live that life.
- Let the power of compound interest work for you. Did you know that Buffett has generated over 90% of his wealth since he turned 65? Start investing young and early and never stop! Since we are in college graduation season, here is a great strategy to consider: For those fortunate to have leftover funds in a 529 account that has been open for at least 15 years, in 2024 you can rollover up to $35,000 of it into a ROTH IRA (subject to annual ROTH contribution limits which are currently $6,500 - $7,500). Let that grow for 40 years at 10% and when your college graduate is about 62 years old, he/she could have about $1.6 million in a tax-free retirement account! Next, teach your child about the benefits of automated savings and investing and have them contribute just $100 a month to this strategy; they will then be sitting with a tax-free account worth over $2 million at age 62.
Have a wonderful upcoming Memorial Day Weekend!
NCM Capital Management
Disclosures: This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of NCM Capital Management, LLC and are subject to change at any time based on market and other conditions and NCM does not undertake to update or supplement its newsletter or any of the information contained therein. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable. There is no guarantee that the investment strategies discussed above will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Investment advisory services are offered through NCM Capital Management, LLC, an SEC-registered wealth advisory firm domiciled in New Jersey. This communication is not to be construed or interpreted as a solicitation or offer to sell investment advisory services. For additional information about NCM Capital Management, LLC, you may request a copy of our disclosure statement as set forth on Form ADV.