Here are the investing lessons for common investors from Buffett’s Annual Letters.
Note # 3 – Investment advice for non-professionals
The “what” of investing:
American business has done wonderfully over time and will continue to do so. The Dow Jones industrial index advanced from 66 to 11,497, paying a rising stream of dividends.
The goal of the nonprofessional should not be to pick winners – 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 “when” is also important.
The main danger is that the beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur.
The investor to accumulate shares over a long period and never sell when the news is bad and stocks are well off their highs.
Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results.
Buffett’s advice is simple:
– Put 10% of the cash in short-term government bonds and
– 90% in a very low-cost S&P 500 index fund
– From 2014 Buffett’s Annual Letter