Join our investing community

Warren Buffett vquence

Discussion in 'Shares' started by Nigel Ward, 23rd Jul, 2007.

  1. Nigel Ward

    Nigel Ward Team InvestEd

    10th Jun, 2005
    Last edited by a moderator: 17th Sep, 2016
  2. austing

    austing Well-Known Member

    5th Jun, 2006
    Hey Nigel,

    Excellent post.

    I have heard this before but enjoyed listening to it again.

    For me the most important advice to come from Buffet for the non-professional investor (and lets be realistic about just how much work it takes to "professionally" know a business well) is the following extract from his speech:

    "If you are not a professional investor, if your goal is not to manage money in such a way to get a significantly better return than the world then I believe in extreme diversification. So I believe that maybe more than 99 percent of investors should extensively diversify and not trade. That leads them to an index type fund with very low cost. "

    This has been my thinking for quite some time and hearing Buffet support this strategy only strengthens my resolve in heading in that direction. Hence from an Australian perspective this could be done by investing in Index Funds & older Listed Investment Companies etc. I know that I will never have the time or inclinatiion to develop Buffet-like insight into understanding businesses. The other huge advantage of these type of low cost, diversified investments is that they are as close to set and forget as you can get and take the most minimal amount to time to manage.

    Cheers - Gordon
  3. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    The Buffett Paradox

    "People like Warren Buffett, however, continue to prove that both structure and chaos exist simultaneously. Buffett is an expert at generalizing and, if you read his letters to his shareholders, you will realize that he rarely speaks about specifics.

    The Buffett Paradox
    The Oracle of Omaha proves that there is a structure to the markets, but he also states that he doesn't believe the markets are always efficient. If they were completely efficient, he wouldn't be able to beat the market because everyone would act in same way, buying the exact right stocks at the exact right time. If the market were completely random, he would be a statistical anomaly of immense size. In truth, Buffett and many of the other market mavens profit from moments of chaos and inefficiency in an otherwise efficient market. The inefficiency is all the other people involved in the market. Investor reactions, either overreactions or a lack of reaction, to the data is anything but predictable.

    This uncertainty is what makes trading in growth stocks so exciting. You are not looking at the companies represented by the stocks, companies that are in all likelihood trading at many multiples of their earnings; instead, you are trying to understand the reactions of other investors toward that stock.
    There are some people who are very good at this, more who are occasionally good at it, and the rest who break even if they are lucky, but often do worse. Even the introduction of structure to the practice of trading in the form of new metrics and computer software has not been able to tame the uncertainty. This uncertainty exists in all parts of the markets, but it has the most pull in growth stocks where ranks of traders and analysts cultivate it for their own ends."