Follow Buffett's Path To Wealth Creation
Though very simple, not many
investors actually choose this road to riches
Over an investment careerspanning
more than seven decades, War ren Buf fettt, widely considered the most
successful investor globally, has given several nuggets of advice to investors,
m o s t l y f r o m h i s ow n experience. If followed diligently, his advice
could make one a superior investor. Here is a compilation what `Oracle of
Omaha' advises. Two financial planners, Amar Pandit (AP) and Pankaj Mathpal
(PM), explain how it cam be implemented.
WARREN BUFFETT: I made my first investment at age 11. I was wasting my life up until then.
AP: Time creates money. In other words, compounding and its direct effects will work wonders on your p o r t fo l i o. L e t 's take an example of just starting early by one year. If you start at 39 and invest Rs 10,000 per month in an investment that yields 12%, you will have Rs 1.12 crore when you are 60. However, if you start at 40 and invest exactly similarly, you will have Rs 98.9 lakh at 60. The difference is Rs 13.8 lakh even though you started investing just one year late.
WARREN BUFFETT: I made my first investment at age 11. I was wasting my life up until then.
AP: Time creates money. In other words, compounding and its direct effects will work wonders on your p o r t fo l i o. L e t 's take an example of just starting early by one year. If you start at 39 and invest Rs 10,000 per month in an investment that yields 12%, you will have Rs 1.12 crore when you are 60. However, if you start at 40 and invest exactly similarly, you will have Rs 98.9 lakh at 60. The difference is Rs 13.8 lakh even though you started investing just one year late.
Now consider the difference at 15%
annual return.
It's a staggering Rs 25 lakh.
Staring at 39 and investing Rs 10,000 per month in an investment yielding 15%, you will have Rs 1.75 crore at 60. But if you start at 40 and invest similarly, you will have Rs 1.5 crore at 60.
The above figures mean that when it comes to mone y, t i m e i s p r o b a b l y the most important factor in the g rowth process.
So start now. A delay of even a year can cost you a fortune.
WB: You don't have to be a genius to invest well. But master the basics.
PM: Investment is more about having patience and following discipline. Equity has always outperformed other asset classes in the long term and it has the potential to create wealth. Investors who have limited knowledge about equity market have the choice to invest through the mu tual fund route.
It's a staggering Rs 25 lakh.
Staring at 39 and investing Rs 10,000 per month in an investment yielding 15%, you will have Rs 1.75 crore at 60. But if you start at 40 and invest similarly, you will have Rs 1.5 crore at 60.
The above figures mean that when it comes to mone y, t i m e i s p r o b a b l y the most important factor in the g rowth process.
So start now. A delay of even a year can cost you a fortune.
WB: You don't have to be a genius to invest well. But master the basics.
PM: Investment is more about having patience and following discipline. Equity has always outperformed other asset classes in the long term and it has the potential to create wealth. Investors who have limited knowledge about equity market have the choice to invest through the mu tual fund route.
These funds are managed by pro
fessional who try to reduce risk and maximize returns.
There is a variety of mutual fund
schemes available based on the objective and risk appetite of the investor. An
informed decision can help investor create wealth and achieve their financial
goals.
WB: You can't make a good deal with a bad person.
AP: When it comes to making your investments, the first investment you must make is in choosing the right adviser. This is one cardinal area you cannot really go wrong on. To do so, first understand that there is no person on earth who can protect you from every economic uncertainty and at the same time give you the best returns. If someone tells you so, please fire him or her.
WB: You can't make a good deal with a bad person.
AP: When it comes to making your investments, the first investment you must make is in choosing the right adviser. This is one cardinal area you cannot really go wrong on. To do so, first understand that there is no person on earth who can protect you from every economic uncertainty and at the same time give you the best returns. If someone tells you so, please fire him or her.
So it is important to de fine a
process of selecting a good person as your adviser. It's important to
differentiate between honest people and the glitz/glam of the financial
services i n d u s t r y. I a m o f t e n shocked to see how even the most
sophisticated in vestors choose their advisers. They focus on big brands and
often get relationship managers to pitch against each other. On the other hand,
they speak with multiple people thinking they will get to hear about more
opportunities and thus the focus is always on returns, returns and products.
This is an absolute recipe for disaster.
Thus most people end up with a bad mix of products, a very suboptimal asset allocation and many unnecessary investments. So spend time initially in selecting a good advisor and have a process in place to do so.
WB: Be fearful when others are greedy. Be greedy when others are fearful.
PM: Everybody understands this but hardly anybody follows it and the one who does makes money.
Price of stock or units of mutual fund are always high when the time is favorable and everybody is interested to invest but the same stocks are available at lower valuation when people are fearful. Not going very far, I remember in 2007 when markets were at peak, every other person was either advisor or investor but after market started falling in 2008 most of those investors got fearful and went away from the market. Imaging if you had invested in equity directly or through equity-oriented mutual fund schemes when nifty was as low as 2,524 in 2008, you could simply earn CAGR of 20% at current market levels. But I remember that investors got so fearful then that even they cancelled their SIPs.
Thus most people end up with a bad mix of products, a very suboptimal asset allocation and many unnecessary investments. So spend time initially in selecting a good advisor and have a process in place to do so.
WB: Be fearful when others are greedy. Be greedy when others are fearful.
PM: Everybody understands this but hardly anybody follows it and the one who does makes money.
Price of stock or units of mutual fund are always high when the time is favorable and everybody is interested to invest but the same stocks are available at lower valuation when people are fearful. Not going very far, I remember in 2007 when markets were at peak, every other person was either advisor or investor but after market started falling in 2008 most of those investors got fearful and went away from the market. Imaging if you had invested in equity directly or through equity-oriented mutual fund schemes when nifty was as low as 2,524 in 2008, you could simply earn CAGR of 20% at current market levels. But I remember that investors got so fearful then that even they cancelled their SIPs.
Amar Pandit is founder & CEO, My
Financial Advisor; and Pankaj Mathpal is MD, Optima Money Manager
TOI 140422
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