Read? Rich Man, Poor Man
RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that
HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.
The wealthy investor doesn't need the markets, because he already has all the income he needs. (
CW8888's Three Taps Solution Model for sustainable retirement income for life so that he doesn't have to feel the urge to stay invested for dividend income and he can afford to wait) He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.
The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds.
When stocks are on the bargain table and stock yields are attractive, he buys stocks. (CW8888: Sad that he only knows how to do this. Some more just SGX stocks) When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "give away" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.
And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly.
The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience). (CW8888's Three Taps Solution Model for sustainable retirement income for life so that he doesn't have to feel the urge to stay invested for dividend income and he can afford to wait)
But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested.
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Hi Uncle!!
ReplyDeleteThank you for the wonderful insight. Another lesson learnt - Rich man VS Poor man.
Patience is a virtue and patience is a key.
WB's advice for 99% of people is simply to park your money in an index fund. He's a great fan of US economy and so he advocates S&P500 index.
ReplyDeleteI believe in his mind, he will think that people who go around asking how to invest? What is the secret sauce? What is the guaranteed make-money trading system? Is this stock good to buy? How you select stocks? .... These are the 99% and should simply be passive investors in index funds.
In fact for his wife, he wrote in his will that if he passed away before his wife, that all his money (mostly in Berkshire shares) should be liquidated, and 90% put into Vanguard S&P500 index fund, and remaining 10% put into US Treasuries.
WB is a cunning businessman & he approaches investing just like doing shrewd business deals.
When Lehman collapsed, WB targeted Goldman Sachs, the strongest investment bank at that time. GS was also having difficulty & its share price was plunging. Berkshire Hathaway offered Goldman $5B in exchange for preference shares paying 10% dividends, and warrants for 43.5M Goldman shares. GS didn't have much choice but to accept the deal.
But WB's action also sent a message of confidence to the markets, & helped in some way to prevent a total collapse of confidence. It at least allowed GS to further raise another $2.5B by selling fresh stocks.
By Mar 2013, Berkshire earned a profit of $3.1B on the initial $5B Goldman investment. 62% gains for 4.5 years of waiting, pretty good.
Rich and wise will get richer
ReplyDeleteThats true. Hopefully they steer their next generation to be as rich and wise as themselves !
ReplyDeleteMost of us start from a little guy. How does little guy become wealthy guy?
ReplyDelete... But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.
Absolutely true!
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