The second wealthiest man in America, and the most famous investor in America, Warren Buffett, did an interview with ABC in which we was asked what were his top 3 piece of investment advice he had for average Americans.
Let’s first start off with what he did NOT say. He did not say “Buy And Hold”, he did not say “Invest for the Long Term”, he did not say “Diversify”, he did not say “Dollar Cost Averaging”, he did not say “Be Patient – Don’t Panic”, he did not say “Stocks Are on Sale”, and he didn’t mention anything about a 401k.
But why not? Every professionally certified ”Investment Advisor” out there says those things, why wouldn’t the most successful investor in America say at least one or two of those? The fact that none of those pieces of “advice” made Buffett’s top 3 pieces of investment advice further shows that those mantras are not advice, they are sales slogans and advertising slogans for the financial advisory industry.
So let’s get to what Buffett did say. #1 – “If it seems too good to be true, it probably is”.
Think Bernard Madoff’s and Allen Stanford’s victims wish they had followed that advice? I sure wish I had followed that advice with Auction Rate Securities. I think Buffett is saying here to always have a healthy amount of skepticism when considering an investment opportunity. This is especially the case right now, as we are moving into a very uncertain, unknown economic period in which we are sailing through uncharted waters on many different fronts.
The period of 1983 – 2007 was one of the greatest 25-year economic booms in American history, if not the greatest, and the period of 1988-2000 was likely the greatest bull market the U.S. stock market has ever seen. We may not see things like that for many, many years to come. This goes for stocks, bonds, real estate, just about everything. Be skeptical, do your homework, get second and third opinions, and remember it is always much better to miss out on gains than to lose money.
Buffett’s # 2 piece of advice – “Always look at how much the other guy’s making when he is trying to sell you something”.
WOW, is Buffett taking a shot here against the financial advisory industry? It kind of sounds like it to me. Maybe not, but when I hear this, the first thing I think of is Certified Financial Planners, Investment Advisors, and stock brokers.
As we have discussed here many times before, today’s Investment Advisors/Financial Planners are really just mutual fund sales representatives. They are simply sales representatives that make money off selling mutual funds, bond funds, and money market funds.
Because of this, their investment “advice” really isn’t advice at all and is extremely biased towards the stock market, because that’s really the only investment type they can sell you that they can make money on. This is why they are always negative on CD’s, savings accounts, physical real estate, physical commodities, and foreign currencies, because they can’t make any money selling those.
They all have more sales training than they do investment and financial training. So, as Buffett says, always remember what your Financial Planner makes money on when he gives you investment “advice”.
Finally, # 3 – “Stay away from leverage. Nobody ever goes broke that doesn’t owe money.”
AMEN Warren! THANK YOU for saying this and I hope Wall Street, and the U.S. Government, is listening. He goes farther in the video interview and says that a friend of his once told him regarding leverage “If you’re smart you don’t need it, and if you’re dumb, you’ve got no business using it”. Again – AMEN sir!
Our economy has been built on debt and leverage, at every level, over the last 15-20 years. Individual consumer, household, corporation, federal government. Every level of our economy is based on and dependent upon debt. Unfortunately, as Buffett just said, many of the people (at every level) using leverage had no business using it, which is why we’re in the mess we are today.
This is a lot of why there is such a Commercial Real Estate mess right now, as we discussed yesterday. So, stay out of debt, save money like there’s no tomorrow, and stay away from investing with borrowed money (leverage). That is true, credible, solid financial and investment advice from the country’s greatest investor. Thank you Warren for sharing this advice with us and I hope America is listening!
One more thing that Buffett mentioned, in passing, is that he feels that the value of the U.S. Dollar may well decline, and “could become worth far less” over time. This is due to the “huge deficits” that the U.S. government has run up, as Buffett said in passing talking about investing in yourself.
We all need to seriously, seriously listen to this and consider the implications for this. If Warren Buffett truly feels we may be headed for inflation, even hyperinflation, we better listen and start preparing for that possibility. We will keep a very close eye on this topic here at Investor Rebellion and make the safest possible investment recommendations accordingly.