Buffett’s investment sense: good for you but not for T.V. ratings

ARTICLE CATEGORIES


ARCHIVES


ApplauseHave you ever wondered if investment experts hosting their own television shows invest in the various strategies that are promoted on their shows?

There are many in the investment business who think much of what is discussed is not for its investment content, but more for its entertainment value. 

My personal view is that much financial communication in the various media revolves around the objective of gaining viewers. Why should investment media differ from any other types of media?

The shareholders of large media firms are in the business of making a profit. Any employees who don’t understand that are probably no longer employed at that firm.

Headlines should be sensational and stories about investing should motivate viewers to continue watching. If you have viewers, you can sell your advertising to any number of different companies.

If your investment reporting is correct, but not entertaining, your number of viewers will decline. In the free-market world of profit that will end your career.

Many years ago at an investment conference in the United States, the speaker admitted he had personal knowledge of how many with investment-focused television programs did invest, but didn’t take the weekly advice offered by the experts.

We have insight on how one such expert and investment icon in the United States thinks about investing. One of the most recognized investors in the U.S., he has given us his investment philosophy and has made public what he has written in his will and advised his executor.

Warren Buffett of investment firm Berkshire Hathaway is known as an astute investor. He has managed his firm by diversifying with good companies and holding them for the long-term.No tricks no gimmicks

There are no tricks, no gimmicks and no hot fades; just a good commonsense approach to investing.

In his company’s Annual Report in 2013 he revealed his wishes on how funds would be managed for his wife in the event of his death.  These instructions were written into his will and also given to his executor.

Warren Buffett’s instructions are to “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund…. I believe the trust’s long-term results from this policy will be superior to those attained by most investors-whether pension funds, institutions or individuals- who employ high-fee Managers.”

What Buffett said is consistent with the evidence of investing and documented in countless academic studies published over the past decades.

The key to success lies in good diversification. Avoid the constant buy and sell temptation and hold long-term. Manage costs because we know from research that high cost funds have inferior returns when compared to low cost options.

Few active managers actually outperform the market in which they invest after their management fees are deducted.  

Buffett said “My advice to the trustee could not be more simple.”

Our recommendation is also simple. Invest in a well-versified portfolio that has low costs and hold that portfolio for the long-term.