When it comes to finances, investments and a life worth living, nobody seems more qualified to lecture than Warren Buffett. From his biography - “The Snowball”, written by Alice Schroeder – I extracted some words of wisdom which I would like to share with interested readers.
About Stock Market
In the short run the market is a voting machine. In the long run is a weighing machine. Weight counts eventually, but votes count in the short term.
What one is doing when investing is deferring consumption and laying money out now to get more money back at a later time. The only two questions are: How much are you going to get back, and when?
Interest is the cost of “when”. It is to finance what gravity is to physics. As interest rates vary (from period to period, or from country to country) the perceived value of all financial assets – houses, stocks, bonds – changes.
Ultimately, the value of the stock market could only reflect the output of the economy. (Buffett expected the growth to be no better than 7% a year, on average). The wishful thinking that the stock market could keep rising at 10% or more a year, could only happen in three ways:
• If interest rates remain below historic levels for an extended period of time
• If the share of the economy that went to investors (as opposed to being consumed by employees and government) rose above sustainable levels
• The economy would start growing faster than normal.
However, all of the above are abnormal conditions.
About Wall Street
Wall Street is the only place where people ride in a Rolls-Royce to get advice from people who take the subway.
Anybody who consistently beats the market average is just lucky or trading on inside information. Behind every great fortune (achieved through speculation) there is a great crime.
Moral hazard is a chronic disease, but the world will always be full of people who love risk.
When enough time passes and nothing happens, people who are making a lot of money tend to think it is because they are smart, not because they are taking a lot of risk.
Derivatives are like sex; it’s not who we’re sleeping with, it’s who they’re sleeping with that’s the problem.
Wall Street is a “casino society” that is making the corporate raiders rich. The speculator’s profits should be taxed 100%.
If you keep betting long enough, sooner or later, as long as zero is not impossible, someday a zero will be one hundred percent certain to show up.
About Life
The purpose of life is to be loved by as many people as possible, among the ones that matter to you….That’s the ultimate test of how you have lived your life… As you get older and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.
The trouble with love is that you can’t buy it. You can buy sex, you can buy testimonial dinners, you can buy pamphlets that say how wonderful you are. Sometimes, vast amounts of money could make a person look more attractive, funny and intelligent. But the only way to get love is to be lovable. And for the ones who have a lot of money, this truth is especially irritating. You’d think they could write a check: I‘ll buy a million dollars worth of love. But it doesn’t work that way. The more you give love away, the more you get back.
Life is like a snowball; you are born at the top of a hill and you could roll down, growing at every turn. But there are choices in life that will influence the way you grow.
“…The snowball only happens if you are in the right kind of snow. What makes it right is your understanding of the world and what kind of friends you accumulate. At times, you get to select, and you’ve got to be the kind of person that the snow wants to attach itself to. You’ve got to be you own wet snow, in effect. You’d better be picking up snow as you go along, because you’re not going to be getting back up to the top of the hill again. That’s the way life works.”
Saturday, March 20, 2010
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