Warren Buffett: The Easiest Way to Make Money in Stock Market

warren buffett's five investing tips for
people who don't follow the stock market want an investment strategy that the
oracle of omaha would approve of you don't need to spend countless hours
scourging financial statements and reading stock reports
warren buffett has a pretty simple strategy that he thinks is the best way
for the overwhelming majority of people to invest number one buy s p
500 index funds while buffett is without a doubt the world's most famous stock
picker he doesn't think most people should
invest in individual stocks for years he's embraced s p 500 index
funds as the best way for most americans to build wealth
by investing in an s p 500 fund you become an automatic investor in all
500 largest companies who stock the index tracks
including berkshire hathaway amazon apple
facebook google and so on buffett has left
instructions in his will stating that 90 of his personal wealth should be
invested in the s p 500 index funds the remaining 10
percent will be placed in short-term u.s treasuries although buffett is a
long-time proponent of index investing for most people
berkshire hathaway only recently added two s p 500 funds to its portfolio
in february its 13f filing revealed that it had purchased shares of the vanguard
s p 500 etf and spider etf though combined
the funds still make up less than one percent of berkshire hathaway's holdings
let's take a moment and see what warren buffett himself has to say about invest
in index fund so i would pick a broad index but i
wouldn't toss a chunk in at any one time i would do it over a period of time
because the very nature of index funds is that you
are saying i think america's business is going to do well
over reasonably well over a long period of time but i don't know enough
to pick the winners and i don't know enough to pick the winning times
there's nothing wrong with that i don't know enough to pick the winning times
occasionally i think i know enough to pick a winner but not very often
and i certainly can't pick winners by going down through the whole list and
saying this is a winner and this isn't and so on so
the important thing to do if you have an overall feeling that businesses
reasonable place to have your money over a long period of time is to invest over
a long period of time and not make any bet
implicitly by putting a big chunk in at a given time
as to the criteria as to when you should or shouldn't i don't
think there are any great criteria on that i don't think price earnings ratio
you know determines things i don't think price book ratios price sales ratios i
don't think any there's no single metric i can give
you or that anyone else can give you in my
view that will tell you this is a great time to buy stocks or not to buy stocks
or anything of this sort it it just isn't that easy that's why you
go to an index fund and that's why you buy over a period of time it isn't that
easy you can't get it by reading a magazine
you can't get it by you know watching television you can't
you'd love to have something that said you know i mean
that that you know if pe's or 12 or below or some number you're buying if
they're 25 or above yourself it is it doesn't work that way it's it's
it's a more complex business than that it couldn't be that easy when you think
about it so if you are
buying an index fund you are protecting yourself against the fact that you don't
know the answers to those questions but do you think you can do well over time
without knowing the answers to those questions as long as you
consciously recognize that that fact and uh you know i would if you're a young
person and you intend to save a portion of your
income over time i just say just pick out a very broad index and i would
i would probably use the s p 500 because i think if you start getting beyond that
you start starting to think you should be in small
caps this time and large caps that time or this
foreign side and as soon as you do that you know you're in a game you don't know
you know you're not equipped to play in in all candor
that would be my recommendation 100 years ago one share of snp 500 was
trading at less than 10 dollars you can also call it points since it's
an index fund but for simplicity we'll stick with
dollars now one share costs nearly three thousand five hundred dollars
so if you would have invested 100 years ago and withstood all the fluctuations
and volatility you would have generated 350 times your
money today not bad at all not doing any financial
research and still becoming wealthy on average s p 500 generates 10 percent
annual compound rate as albert einstein once said compound
interest is the eighth wonder of the world
he who understands it earns it he who doesn't pays it
number two keep the fees low most fund managers who try to outperform
a broad index like the s p 500 will underperform in the long run as
buffett frequently points out that's why he loves to slam fund
managers who charge high investment fees in spite of a not so stellar track
record buffett famously bet 1 million dollars
that an s p 500 index could beat 5 hedge funds over
10 years of course he won the bet and
donated the winnings to charity one year earlier he predicted his win in
2016 letter to berkshire hathaway shareholders
and fund manager fees were a major factor quote
when trillions of dollars are managed by wall streeters charging high fees
it'll usually be the managers who reap outsized profits
not the clients buffett wrote so when you invest in s p 500 index funds
look for the one with the lowest expense ratio possible
the lower the expense ratio the more of your money actually goes into the
investment for example if you invested one thousand
dollars in a fund with a zero point one percent expense ratio
nine hundred ninety nine dollars of your money would be invested and the
remaining one dollar goes toward fees in case you were wondering the
vanguard and spider etf that berkshire hathaway owns
have an expense ratios of 0.03 and 0.09 percent respectively
number three pay off credit cards before you invest
at berkshire hathaway's 2020 shareholder meeting held virtually in may
buffett was asked about the state of the credit card industry
he used the occasion to remind the world of the high cost of carrying a credit
card balance even though berkshire hathaway often
profits from credit cards given its heavy financial sector holdings
buffett told the story of a friend who sought his advice about what to do with
her money he asked her if she had credit card debt
she did with an apr of 18 buffett told her that
the interest savings from paying off the credit card debt would be far greater
than she could earn from any investment quote i don't know how to make 18 he
said number four practice dollar cost
averaging buffett isn't a fan of market timing in
february at the start of the coronavirus pandemic
he told cnbc quote you can't predict the market by reading the daily newspaper
like his mentor benjamin graham buffett is a proponent of dollar cost averaging
in which you invest regularly at fixed intervals no matter what's happening in
the stock market so when he recommends funds that track a
broad-based index like the s p 500 for most investors it's with a caveat
don't put your money in all at once do it over a period of time
number five invest with a long-term horizon
some of buffett's greatest words of wisdom are about the importance of
long-term investing regardless of whether you follow his
advice and stick with passively managed index funds or pick your own stocks
he suggests you ignore short-term results no one can predict what might
happen in the stock market in the short term
most of the time financial news is all just random noise
focus on the long-term investing have a time horizon in decades
not in days or weeks buffett believes you can count on good results over time
as he put it in his 2016 letter to berkshire hathaway shareholders
american business and consequently a basket of stocks
is virtually certain to be worth far more in the years ahead
let me know what you guys think about investing in index fund leave your
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