After a strong 2023 for stocks, good returns might be harder to achieve in the new year. For those looking to set new goals and adjust portfolios, here are some investing tips from none other than Warren Buffett to consider. Buffett, who at Columbia University studied under Benjamin Graham , the fabled father of value investing, is a proponent of a long-term time horizon for investments and buying companies with sustainable earnings power. But for the average investor, he always recommends buying a low-cost index fund that tracks the S & P 500. “In aggregate, American business has done wonderfully over time and will continue to do so,” Buffett wrote in his 2013 annual letter. “The goal of the non-professional should not be to pick winners – neither he nor his ‘helpers’ can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S & P 500 index fund will achieve this goal.” The “Oracle of Omaha” revealed 10 years ago that his will directs that 10% of the cash go in to short-term government bonds and 90% to a low-cost, S & P 500 index fund (He suggested Vanguard’s.) Buffett believes that professional money managers and advisers on Wall Street are incentivized to recommend various securities, and the fact is that they rarely beat the market. “You just have to recognize you’re dealing with an industry where it pays to be a great salesperson,” Buffett said at Berkshire’s 2020 annual meeting. “There’s a lot more money in selling than in managing, actually, if you look to the essence of investment management.” Math can be dangerous For investors who are seeking to pick winning stocks, Buffett believes that one doesn’t have to excel at technical analysis or mathematical calculations in order to find good opportunities. “If you need to use a computer or a calculator to make the calculation, you shouldn’t buy it,” Buffett said at 2009’s annual meeting. “It should be so obvious that you don’t have to carry it out to tenths of a percent or hundredths of the percent. It should scream at you.” Buffett views stock holdings as owning pieces of a business. He buys something when he grasps the intrinsic value of an asset, or the discounted value today of the cash that a business generates in the future. The 93-year-old investing icon thinks that most market action is largely driven by emotions such as fear and greed, and math and a high IQ don’t necessarily help. “Higher mathematics may actually be dangerous and it will lead you down pathways that are better left untrod,” Buffett said. “We do not sit down with spreadsheets and do all that sort of thing. We just see something that obviously is better than anything else around, that we understand. And then we act.” Don’t make it back the way you lost it For those who made a dud investment in the past, Buffett believes moving on is the best option. “It is true that a very important principle in investing is you don’t have to make it back the way you lost it. And in fact, it’s usually a mistake to make — try and make it back the way that you lost it,” Buffett said in 1995. Buffett spoke of a soured bet he first made in the old USAir in 1989. Berkshire invested $358 million in USAir in the form of preferred stock. Years later, Buffett told shareholders that it was a deal he should not have made. “It could’ve been worse, but it was a mistake,” Buffett said during the 1995 annual meeting . Stay away from declining businesses When Buffett was starting out, he used to buy dirt-cheap, failing companies that he called “cigar butts.” The Berkshire CEO compared buying troubled companies at deep discounts to picking up a discarded cigar butt that had one puff remaining in it. “Though the stub might be ugly and soggy, the puff would be free. Once that momentary pleasure was enjoyed, however, no more could be expected,” he said. Later, under the influence of the late Charlie Munger, his longtime partner, Buffett came to understand that buying “cigar butt” companies isn’t beneficial in the long run. “It pays to stay away from declining businesses,” Buffett said in 2012. “If you really think a business is declining, most of the time you should avoid it. …The real money is going to be made by being in growing businesses, and that’s where the focus should be.” Buffett is now known for seeking out wonderful businesses that he could buy at fair prices. He transformed Berkshire Hathaway from a small, failing textile mill into a near-$800 billion multifaceted juggernaut.
