I started serious Investing Journey in Jan 2000 to create wealth through long-term investing and short-term trading; but as from April 2013 my Journey in Investing has changed to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

Since 2017 after retiring from full-time job as employee; I am moving towards Investing Nirvana - Freehold Investment Income for Life investing strategy where 100% of investment income from portfolio investment is cashed out to support household expenses i.e. not a single cent of re-investing!

It is 57% (2017 to Aug 2022) to the Land of Investing Nirvana - Freehold Income for Life!


Click to email CW8888 or Email ID : jacobng1@gmail.com



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Sunday 25 February 2018

Buffett has one big investing lesson in this year's annual letter: Never borrow money to buy stocks


Read? Buffett has one big investing lesson in this year's annual letter: Never borrow money to buy stocks

CW8888: Even you are the world's greatest investor; Mr. Market no hew you during market crash!

Warren Buffett believes investors should avoid using borrowed money to outperform.

The Oracle of Omaha explained the perils of using debt and leverage in his 2017 annual letter to Berkshire Hathaway shareholders released on Saturday.

"Berkshire, itself, provides some vivid examples of how price randomness in the short term can obscure long-term growth in value. For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic. Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips," he wrote.

The investor shared the data which revealed Berkshire Hathaway's stock declined by a range of 37 percent to 59 percent multiple times over the last five decades.














"This table offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period," he wrote. "Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions."

Buffett predicted the company's stock will fall again by similar large declines in the next 53 years.

"No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow," he wrote. "When major declines occur, however, they offer extraordinary opportunities to those who are not handicapped by debt."

The investor shared an excerpt from British Nobel laureate Rudyard Kipling's 1895 poem "If—" to illuminate the investing lesson:


"If you can keep your head when all about you are losing theirs . . .

If you can wait and not be tired by waiting . . .

If you can think – and not make thoughts your aim . . .

If you can trust yourself when all men doubt you...

Yours is the Earth and everything that's in it."


Buffett blasted the belief that bonds were a lower risk investment over the long-term. He recommended investors stay in equities due to negative impact from inflation on the purchasing power of fixed income holdings.

"I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor's investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates," he wrote. "It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment 'risk' by their portfolio's ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk."


CW8888:

Read? Memory of Asian Financial Crisis is back!


Those days pre AFC; we didn't have income stocks that provided net yield 3% to 7%. This time is Bao Jiak! Come come and hoot. Why scare?

S-REITs. Mai Tan Liao!






10 comments:

  1. CW,

    Two take away:

    1. If a person has to be 100% vested in equities to be "financially free", its a bit like riding Honda cub on the Malaysian North/South highway.

    Using margin to super boost dividends to make up for lack of portfolio size... Now that's riding personal motorized scooters on the highway!


    2. If voluntarily contribute to CPF is "bond" like "investing", then it makes for some interesting reflections ;)

    Those who do it in their late 40s or early 50s - that's short term bond "investing". Can get it back at 55.

    But those who do it in their 20s or 30s?

    Time for Warren Buffett young fan boys and girls to do cherry picking!

    Parrot quotess you like; ignore those you dislike.

    LOL!



    ReplyDelete
    Replies
    1. Riding PMD on Singapore highway is illegal. That includes walking or jogging along highway. Your car break down on highway. You call for help and wait for emas pickup. No walking to the nearest exit. It is illegal.

      Delete
  2. Hi CW,
    Been there done that with crash got sound. Fully invested with pennies and facing a multi year downtrend with limited panadols, not fun at all.
    There will always be market where speculators/investors over leveraged. The market makers - investment banks/hedge funds know it - they watched like hawk and scope (short) to trigger max pain/margin call.

    I’m just a wolf waiting for the feast/bloodbath and grab some pieces of leftovers so i keep some energy (funds) and not always chasing my preys..
    E.g. I love it when Reits issue rights cos some times there are good value to pick more

    ReplyDelete
  3. Another asset class - properties is a highly leveraged asset. In singapore it is typically leveraged at 50-70%. Since it is linked to long term bonds, will be interesting to hear Warren’s opinion on singapore property investment 😆

    ReplyDelete
    Replies
    1. No choice. For property has to leverage unless tio Hong bao draw

      Delete
  4. Use Kuan Knife to leverage . Not double edged

    ReplyDelete
  5. There is always a choice on the amt to leverage
    When one mix self stay and investment, this may result in 20-30 years worklife and no...wife must work also. Property investment is an looong term investment 😆

    ReplyDelete
  6. Coincidence that he highlighted the big drops of Berkshire during his career. Other commentators in recent months have mentioned his 3X -50% drops ... but their focus was on (1) conviction to hold long term to unlock value & (2) having sufficient liquidity to hold ... conviction not enough when you have mortgage, bills, food, kids' school fees to pay next week. Hohoho!!!

    This is why I don't quite agree when he says ordinary investors should simply hold (most? all?) their portfolio in stocks. There is big sequence of returns risk...

    Unless you have fire-proof recession-proof job and/or humongous portfolio such that -70% decline still enough for next 100 years... Seeing your $1M portfolio decline to $500K or $400K within 6 months will make most do bad decisions, leverage or no leverage.

    Hence importance of sufficient cash & short term high quality bonds to sustain one's sanity & continue long term investment plan.

    ReplyDelete
  7. I am thinking how US is funding ever growing deficit?

    ReplyDelete

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