Be Like Warren Buffett, And You Will Do Great ( Most likely on a smaller scale, though)

As Jonathon and many others have advocated on this site, avoiding life style creep, and not climbing aboard  the hedonistic treadmill, keeping it simple, etc., are sure fire ways to have a really good chance of achieving financial success. Also, keeping the assets in the correct account types, diversifying and rebalancing are critical , as well as taking the long term view.

It appears to me that Warren Buffett has long been a tremendous example of following that advice. For example, he lives in the same Omaha home he bought for 35 grand many decades ago, it is now worth around 1.2 million. A tidy sum, but, for a guy whom is worth around 147 billion, it is extremely modest.* ( My house is worth around 800k, and I am not within light years of that level, to put it mildly)

His car, last time I checked was a 8 year old Cadillac, and he has breakfast from Mc Donalds, daily. He does own a private plane, but, nothing close to the 757 Mr. Trump owns, and a far cry from the custom 747 that a very rich person from the middle east owns.

He has no boat, and no girlfriend  that is younger than his grandkids. ( Bill Belichick, at 74 years old,  is engaged to a 24 year old cheerleader, I hope he has a healthy heart) Buffett avoids the noise by residing in the mid-west, centrally located and away from both New York and California.

Buffett is also so brutally honest, he advocates investors now to simply buy a low cost index fund tracking the 500 most dominant American companies, and keeping a certain  percentage in cash and cash equivalents for liquidity. The percentages are  determined  by what your age , risk tolerance and so forth, might be.

I would think though, for us smaller investors, a minimum 20% in international stock might be wise, and perhaps 10 in small value. The less  money we have , the more important it is to be diversified.***  I mean, when you have billions and billions, even a drop of 90 % would not leave you destitute, I would hope. **

He states that Berkshire has simply grown far too large to offer a repeat of the tremendous performance of the past, a whopping 20 percent annual return, since he took over. If I remember correctly, great chance I don’t, that would turn a small fifteen buck initial outlay, into about 500 grand.

Indeed, Buffet has ,instructed his heirs, to put 90% of his money in the Vanguard 500 and 10 into short treasuries  for liquidity, after his demise.

And, true to form, he keeps showing how he is still on top of his game, raising his cash to very high levels ,even more than usual, avoiding using the cash for stock purchases and/or buying out entire companies., that he feels are not good deals. Certainly, having half in stock and half in cash ,is a rational strategy, as advocated by his mentor, the late Ben Graham.

( Graham advocated never more than 75 % than either treasuries or stocks, fifty- fifty most of the time. Perhaps go to the max of 75 in treasuries at extreme market valuations, with bond yields at  levels around 15 percent or higher, as they were 40 plus years ago, etc. And 75 in stock when yields were zero or below zero, and so forth)****

And I need to add what Larry Fine , of Three Stooges fame , said when asked by a teacher , whom was testing Larry’s intelligence: ” If you had a dollar, and your dad gave you a dollar, how much would you have?” Larry, ” One dollar.” Teacher, ” You do not know your arithmetic!” Larry, “you do not know my father!” And I am aware that has nothing to do with my post. Oh well.

* Of course, to those whom are convinced of the far greater returns of real estate compared to stocks, this clearly looks like solid proof. But,  as all HumbleDollar people are aware, looks can be deceiving. Alas, once 70 years of property taxes , hazard insurance, repairs, remodeling, maybe some interest expenses, and the like, are included , maybe not so great, after all.

I roughly did the math, I could be off by a lot, but, that money invested in the 500 index would be worth many multiples higher , compounded at 10 % for say, 70 years , is about 20 million large. That would not have been possible, no index funds,back then,  etc., but I think it proves, beyond doubt, that houses are perfect for living in, and stock for making money. And I will add cash for shorter term needs.

And just for fun, 35 k at 20 percent for 70 years, is 20 billion big ones. Oh Boy.

** I attempted the math once again, and I am not a threat to Euler or Newton or Einstein, but, if I aced it, doubtful,if Warren lost 99.99 of his personal net worth, he would still have 14.7 million. (Maybe have to fire the landscaper or something.) I do not feel that is likely.

*** Buffett has stated that  diversification is only for people whom do not know what they are doing. That would be me. And, sadly, I am the poster boy for that characterization.  Please, in the interest of human decency, do not ask what financial blunders I have made.

But, at least I was not involved with the building in East St. Louis that was sold for 300 million less than ten years prior. It recently changed owners for 3 million,  a whopping 99% haircut, a ” crew cut”, if you will, of epic proportions. Not bad. A great tax deduction, though. At least there are no evictions needed.

**** Peter Lynch advocated buying treasuries when the yield was more than 6 percent above the yield on the 500 index. Or, maybe 7. I cannot remember what he said regarding durations, maturities, sadly. Let me think. Maybe intermediate. Or long. Or maybe short. Even ultra short or extended duration. Hah! I knew I would remember!