Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely considered the most successful investor of the 20th century.
At the Investment Fitness Club all our programmes and processes are designed and built for you in line with Warren Buffett’s seven investment principles.
- It is critical that your investments deliver over the long term the return you require to have enough money to achieve your goals. As Warren Buffet (pictured) says: “What you’re doing when you invest is deferring consumption and laying money out now to get more money back at a later time. And there are really only two questions. One is how much you’re going to get back, and the other is when.
“The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a five per cent passbook account whether she pays 100 per cent income tax on her interest income during a period of zero inflation or pays no income taxes during years of five per cent inflation. Either way, she is ‘taxed’ in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 per cent income tax but doesn’t seem to notice that five per cent inflation is the economic equivalent.”
- It is critical that you have a well thought out plan to guide your investment decisions.
As Warren Buffet says: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
- It is critical that you hold yourself and those you work with accountable on a regular basis.
As Warren Buffet says: “It is not necessary to do extraordinary things to get extraordinary results.”
- It is critical that the risk profile of your investments matches your appetite for risk.
As Warren Buffet says: “Risk comes from not knowing what you’re doing.”
- It is critical that you don’t pay more tax than necessary on your investments. If they are tax efficient they won’t have to work as hard and you won’t have to take on as much risk.
As Charlie Munger, Warren Buffet’s partner says: “Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you’re going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15% or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work.”
- It is critical that – just as in any business enterprise – you control costs particularly from frequent trading which eats into profits.
As Warren Buffet says: “The Stock Market is designed to transfer money from the Active to the Patient.”
- It is critical that you have a clear and well thought out investment process to guide you in your investment choices. Past performance is such a poor indicator of future performance that selecting investments largely on this basis is a recipe for a poor outcome.
As Warren Buffet says: “The dumbest reason in the world to buy a stock is because it’s going up.”
Click here to test if Warren Buffett’s seven investment principles are being implemented in your portfolio.
John Clifton “Jack” Bogle is the founder and retired CEO of The Vanguard Group, the world’s largest mutual fund company. He is known for his 1999 book Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor, which became a bestseller and is considered a classic.
At the Investment Fitness Club all our programmes and processes are designed and built for you in line with John Bogle’s ten investment commandments.
- Remember reversion to the mean. Selecting your fund from yesterday’s winners is fraught with peril. Over the long run, reversion to the market average is inevitable.
- Time is your friend. Start early, stick to a plan and ignore the chatter of the day. Let the miracle of compound interest work for you.
- Buy right and hold tight. Once you set your asset allocation, ignore moves in the market. Stick to the plan.
- Have realistic expectations. Rates of return in the coming decade are likely to be lower than the last. A seven per cent annual return before costs and inflation for stocks and a 2.5 per cent return for bonds before costs and inflation is reasonable.
- Forget the needle, buy the haystack. Don’t waste time buying individual stocks or stock funds. Cut your risk by purchasing broad-based index or exchange-traded funds.
- Minimise the “croupier’s” take. Minimise fees by investing in low-cost, low turnover funds. This increases your return.
- There’s no escaping risk. There’s no wealth without risk. If you don’t save, you’ll end up with nothing. And if you don’t invest for your retirement, your savings will be depleted by inflation.
- Don’t fight the last war. What worked in the past is no predictor of what will work in future. The past is not prologue.
- The hedgehog beats the fox. Foxes are sly and represent financial institutions that sell complicated products and charge high fees for advice. A hedgehog does one thing when threatened — he curls up into a spiny ball. Simple, but effective, like an index fund.
- Stay the course. The secret to successful investing isn’t forecasting or good stock or fund-picking. It is about making a plan, sticking to it, eliminating unnecessary risks, and keeping your costs low.
Click here to test if you are following John Bogle’s ten investment commandments.