Do You know How Warren Buffett Manages His Wealth?
Jan 08, 2019

1. “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1” -- This famous quote by Buffett reflects his attitude towards the concept of notional loss. A majority of investors get a panic attack every time the Sensex falls. Rarely do they realise that any fall in the market is a notional loss (not a real loss) as they haven’t sold the security yet. Therefore, the next time the markets plummet 1,000 points, remember the concept of Notional Loss!

2. “Price is what you pay, Value is what you get” -- This is another quote by Buffett expressed to his Berkshire Hathaway shareholders enunciating the importance of active portfolio management.

   There is a lot of free flowing advice (read noise!) on the internet and on various websites regarding wealth creation and financial planning and investing. But tomorrow if you suffer a gigantic loss on an investment, you can’t sue the newspaper or source of the advice owing to a smartly worded disclaimer.

   Accountability is expected from a proper dedicated wealth manager; and hence, paying for one to manage your wealth is crucial.

3. “Most behaviour is habitual" – This is what Buffett said in a speech to college students, "and they say that the chains of habit are too light to be felt until they are too heavy to be broken.” Make good habits relating to money, start early, be disciplined, and most importantly create a habit of being persistent. Essentially, inculcate the ability to stay headstrong even if the world around you is losing theirs.

4. Maintain cash reserves -- Berkshire Hathaway always has at least US$20 billion in cash equivalent. This strategy helped them stay afloat in the 2008 crisis.

   So, even if you are investing for 10 years, make sure you have ample cash reserves to handle exigencies, whereby wealth creation to accomplish the envisioned financial goals is not hampered.

5. Set goals for long-term but sensibly -- Buffett has often advocated the importance of investing with multi-decade-horizon. On the journey of creating wealth, you would need money to fulfil intermediate financial goals; therefore having multiple wealth horizon helps. Multiple-decade-horizon also helps in setting an asset-allocation.

6. “Invest in what you know” – These valuable words from Peter Lynch famously apply to the “ever-greedy-speculator” in all of us. We get swayed by the tips shared on TV or by friends and invest in assets that we have no expertise in. Invest in things that you know, that are easy to comprehend, and therefore easy to track.

   Just to put things in perspective, Charlie Munger believes Bitcoins to be poison! Let the speculators speculate. You are an investor, stay focused on creating wealth.

7. “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves” -- This is Lynch’s counter argument to investors who wish to time the market. It reflects the mind-set of all investors today who are waiting for the election results in May 2019 and a subsequent fall in the markets to invest.

   A word of advice, don’t wait. The markets may have already discounted for the election result and may be ready for the selling onslaught.

   [Read: Waiting To Invest Until The Outcome Of 2019 Lok Sabha Elections? You’re Making A Mistake!]

   Invest systematically (preferably via SIPs in mutual funds), be disciplined and, who knows, you too could be the oracle of Omaha of your city!

8. Charlie Munger has often quoted, “Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail.” Invest in good, ethical businesses, and ethical financial planners and wealth managers. These are the organisations that create value in your wealth.

9. “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.” These great words by Benjamin Graham warns us about the herd mentality bias, where we invest in whatever friends or relatives or colleagues are investing in without conducting a proper background check. Remember, what worked for your friend may prove to be a debacle for you.

   [Read: Why Mimicking Your Friend’s Investments Can Be Risky]

10. “There is no reason for shame in hiring someone to pick stocks for you. But there’s one responsibility that you must never delegate. You, and no one but you, must investigate whether an adviser is trustworthy and charges reasonable fees” – Benjamin Graham. This quote from The Intelligent Investor can act as a gospel to the investors resisting good and ethical advice instead of falling for free-unethical-advice. There is indeed no harm in seeking good, ethical, and unbiased advice and then conducting your evaluations before proceeding with the investments.

Like these four great intelligent investors, you too might be starting from the scratch to build your fortune and may require the assistance of an ethical, unbiased wealth creator and manager. Well, look no further and connect with PersonalFN’s Certified Financial Planners and Wealth Managers on 022-61361200 or write to info@personalfn.com. You may also fill in this form, and soon our experienced financial planners will reach out to you.

These were my favourite investment gurus, who are yours and what is your favourite investment principle?

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