Exciting news this week with Bulletproof Investing officially available on Audible and all other audiobook platforms!
This week I’ve been thinking that the success of an investor has just as much to do with their mindset as it does the investments they make.
Take for example Warren Buffett, the most successful living investor of all time.
He’s 91 years old and while he is no longer the richest man in the world (he’s currently number five), he is one of the only people in the top 10 who made their wealth by investing rather than building companies.
More importantly he has been doing it for seven full decades (since 1951!). That means he’s kept himself going and built his wealth despite living through more than 10 recessions.
There’s a lot of uncertainty and volatility in the market right now.
The S&P 500, an index which tracks the share price performance of the 500 largest companies listed on the stock exchanges in the United States, is down 13 per cent since the beginning of the year.
And we are still dealing with a war in Europe and the tail end of the pandemic which has led to the wealth of the 50 richest people in the world dropping by more than half a trillion dollars this year.
Amazon founder Jeff Bezos has lost $53 billion of wealth. (Don’t worry, he’s still worth $139 billion…).
Warren Buffett has bucked the trend, though, increasing his wealth by 4 per cent since the beginning of the year.
One of his most famous sayings is to “be greedy when others are fearful, and fearful when others are greedy”. He has done just that by buying $51 billion worth of stocks in the year to date, despite the market falling by 13 per cent in that time.
I don’t invest in the share market personally, so it’s not an area I can talk to in any detail.
However, I can offer some insight for property investing which would no doubt have similar application to the share market.
Investing requires a long-term view and patience, and 91-year-old Warren Buffet, with his 70 years’ worth of experience, exemplifies these traits of successful investing.
A few months back I was doing a case study on a place called Carina in Queensland.
We had 21 clients invest in Carina in 2001. The average price of the houses at the time was $250,000.
Those homes are today worth more than $1 million and rent for $600 per week.
Interestingly, only 12 of the 21 clients who bought their properties back in 2001 still own them.
The other nine clients sold their properties between 2005 and 2016 selling in 2009 for an average price of $450,000.
While they made a good profit, they ended up leaving more than half a million dollars on the table.
Sometimes circumstances force investors to sell (divorces, lost jobs, etc), however it can’t be a coincidence that a good chunk of the nine who sold their properties sold them in 2009 as we started to hear murmurings of the global financial crisis, and after Brisbane house prices had more than doubled in the previous five years.
It’s also worth noting that the 12 clients who still own property in Carina collectively own more than 100 properties: an average of eight each!
Warren Buffett has always taken a long-term view, and one of the best examples is that he bought Coca Cola shares in 1988 and has made an 1800 per cent return on his money in that time. He’s held the stock continuously for 34 years despite drops in value of 15 per cent in 1991, 30 per cent in 1998, 20 per cent in 2007 and 35 per cent in 2020. I don’t imagine he’ll be selling his shares in Coca Cola any time soon (nor the ones he owns in Jeff Bezos’ Amazon).
The message is to keep your cool and stick to the plan, especially in uncertain times. Invest with a long-term view without being too worried by the daily or monthly movements to values and make plans to protect yourself for against the time when assets have their inevitable periods of low or no growth.
On the other side of the coin, to be fearful when others are greedy means always having cash put aside for a rainy day (I work on having three months’ worth of expenses personally) and paying off as much non-deductible and non-income-earning debt as you can.
That way you are as prepared as you can be to hold on should you lose your job, have a period of vacancy in your investment property, or be confronted with rising costs before you’re able to collect additional rents (refer previous blog on this one).
If it’s good enough for the most successful living investor, it’s good enough for us.