Mad Money / Sane Money
Let's talk about your dream - whatever it may be. Perhaps you'd like to buy a sports car, or travel the world, or retire on a remote plot of land and raise some chickens, or perhaps all that and more. As an investor, this dream is perhaps the most important aspect of your investment strategy - and achieving it needs to be your reason for investing. Ultimately, a good investor is simply one who achieves their dream.
Now let's pretend that your dream is going to cost a million dollars, and a good Samaritan comes along and gives you two offers. The first is simple, he'll give you a million dollars and be on his way - enough for you to turn your dream into a reality. Alternatively, you can flip a coin - tails, you walk away with nothing; heads, you walk away with two million dollars - enough for you to turn your dream into a reality, and much more.
It's not a very difficult choice to make; why risk it all in pursuit of more than you need?
As an investor, you've got an incredibly large range of options available to you - whether it's buying cryptocurrencies, trading options, or investing in a managed portfolio. Essentially, you can risk what you like chasing returns, but when wanting a certain and predictable outcome, do you want to be mad (speculating), or sane (using a big boring portfolio)?
To reaffirm this argument of taking the academically backed option (big passive portfolios) over actively managed funds, we can look to the Berkshire Hathaway annual meeting for shareholders which happened at the start of this month. In typical fashion, Warren Buffett (Chairman of Berkshire Hathaway) and Charlie Munger (Vice-Chairman of Berkshire Hathaway) spent several hours answering questions and ultimately discussing everything about investing. Early into the meeting, Buffett singled out newer investors and highlighted some of the difficulties in picking stocks.
Illustrating this, Buffett showed a list of the 20 largest companies in the world by stock market value (on 31 March 2021) and compared it to the same list 30 years ago. Notably, the lists were unique - none of the largest companies three decades ago were the same ones there today. One of the biggest changes was the increase in technology companies, but even this has a lesson in itself. Buffett goes on to explain how back at the start of the 1900s, when the automotive industry was beginning to kick-off, over 2000 automotive companies were launched. By 2009 however, only three were left. This goes to suggest that even if you can pick the right industry to invest in, you also need to know which companies within that industry will make it.
To conclude, this goals-based approach to investing cannot be stressed enough. We believe in helping you achieve your dreams and urge you to look at your investment portfolio through the same lens.
Click here to watch the 2021 Berkshire Hathaway AGM
Skip to 1h 09m for the start of the meeting.
Skip to 1h 24m for Warren Buffett’s message to new investors.
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