Warren Buffett’s annual letter to the shareholders of Berkshire Hathaway is now available. As always, this is a fantastic read and chock full of great nuggets of wisdom.
Some of the content may be completely irrelevant to you, but instead of focusing there, simply pay attention to the way Mr. Buffett and Mr. Munger think. Anyone looking for some calm and reason in the middle of the storms we face today would be well served to spend the 15 minutes it takes to read through it.
The following headline caught my attention over the weekend: American Stock Markets Are Surging, So Why Do Americans Feel Like It’s Still Recession?
I was hoping to open the article and read about the need for investors to understand the difference between stock markets and the economy. I was hoping to read that traders react to headlines, while long-term investors don’t. I was hoping to read that markets aren’t going to wait around until people feel better to revert to more realistic values…either up or down.
Instead, the article touches on the concept of investor confidence, suggesting at one point that it plummeted as a result of the Great Depression, but then suggests in the next paragraph that falling investor confidence actually caused the Great Recession. (more…)
It has been often said that money is a wonderful servant, but a horrible master. While each individual boasts a different definition of financial success, people that treat money as a servant to their life tend to enjoy a much higher degree of happiness and satisfaction.
Money itself is a dull, lifeless, man-made creation with zero utility. However, because we have assigned it a value, we can use it to purchase things and experiences throughout our lifetimes. But we must not confuse the pursuit of money with the pursuit of happiness. The inherent value of money is not money. Instead, it lies in what it allows you to experience, whether that is a great meal, a trip to Bora Bora, the freedom to do whatever you love to do, or the feeling you get when you give to someone in need.
In his book, Your Money and Your Brain, Jason Zweig explores the time-honored phrase that money cannot buy you happiness in reverse: can happiness buy money? He writes that “happen and happiness come from the same Old English root word, and happy people seem to make good things happen more often.” Because money is so intertwined in everything we do and experience in our lives, it is imperative that we make an effort to position our financial lives and use our money in a manner that increases the likelihood of good things happening. (more…)
As we approach the four year anniversary of the market lows reached on March 6, 2009, recent headlines are touting the DOW’s return to 14,000. While the economy continues to slug along amidst a cloud of uncertainty, investors are starting to wonder if it is finally safe to invest in the markets again. Sadly, these headlines and questions continue to repeat themselves after every market downturn, and the proverbial herd is beginning to follow.
Until recently, investors had been consistently pulling money out of stocks and investing in bonds or cash since 2008. While the broad market has more than doubled since March 2009, net mutual fund flows from US stock funds has been overwhelmingly negative.
This phenomenon underscores the reality that managing your investment behavior is more important than managing your investments. The image to the right, courtesy of Carl Richards at www.behaviorgap.com, demonstrates that we feel good and bad about investing at precisely the wrong times, leading to decisions that are detrimental to our financial well-being. (more…)
“I consider myself to be a farmer—not a hunter. And I think most people on Wall Street are hunters. They like to fell big beasts and I’m very comfortable planting a few rows and just tending to them carefully.”
– Tom Russo, Gardner, Russo & Gardner
Investing is often referred to as a game, or talked about as if it belongs in a casino. If you invest like a hunter, it absolutely is a game…and the odds are stacked woefully against you.
We all know the hunters. They are never shy about talking about the dragons they have slayed and are full of hypotheses, forecasts and opinions about the next big thing. They make investing sound very exciting and easy. To the hunter, investing is all about the next big score and the only way to win is to out-hunt everyone else searching for prey.
Wall Street’s mission is to turn everyone into a hunter. The more activity they create, the more they win. Not only does increased activity create a greater likelihood of mistakes, but more activity creates more trading commissions, so they win regardless of whether you win or lose. (more…)
A common goal for many parents is to provide as much financial support for their children’s college expenses as possible. While there is a strong link between the amount of support provided and graduation rates, a recent study by the American Sociological Review seems indicates that there may actually be an inverse relationship between the amount of financial support and their grades!
We often set financial goals without full consideration of the impact that goal will have beyond the money. Providing our children with a college education is a massive commitment and an admirable goal. However, I submit that for most parents, the real goal is not about the money as much as it is providing our children with the opportunity to succeed. And that formula is different for every person. (more…)