Warren Buffett: If you want to become rich, do not listen to the advice of a millionaire
Warren Buffett is a dinosaur among rich people. Billions of dollars and his investment fund helped turn this man into a business guru. He is called the "Oracle of Omaha". Buffett seems to always know exactly what business will bring in revenue. And what deals are doomed to fail. But is his path to financial wealth right for you?
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Because of his overwhelming success and reputation, Warren Buffett is also well known for his investment advice.
“Be careful when others are greedy or afraid."
This is one of our editors’ favorite millionaire tips. But he has other great things to say. One of them:
“You should have a bucket, not a thimble.”
When it comes to gold, he takes full advantage of all the possibilities of his path like no other. But can you be 100% sure that Buffett is doing what he says? Mismatches are especially noticeable when you pay attention to what Warren Buffett recommends.
It is enough to reread excerpts from his famous letter, which was published in The New York Times during the financial crisis of 2008:
“I don’t like to refer to the stock market, and again I emphasize that I have no idea what the market will do in the short term,” Buffett wrote. “However, I will follow the example of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was. Today my money and my mouth are talking stocks.”
In 2007, Buffett even made a $1 million bet against hedge fund managers. They said the Vanguard 500 Index Admiral Shares will beat hedge fund earnings this year. He was right. By the end of the betting period, his chosen ETF returned 7.1 percent. While the hedge funds chosen by his competitor offered to return just 2.2 percent.
For someone who has come out so publicly in support of index funds, you’d think that’s where he’s throwing all his money away. But you are absolutely wrong.
According to legend, Buffett’s first investments were not in index funds, but in preferred stock. Warren Buffett found with dismay that the value of his stock continued to rise. His motto “patience is gold” paid off.
His first foray into investing may have helped support his “buy and hold” slogan.
But Warren Buffett didn’t become a billionaire by investing in index funds.
Buffett’s first major investments were in individual companies. In 1961, he invested, for example, in a windmill company. He also invested in a textile manufacturing firm. The other big investment that catapulted Buffett to unthinkable wealth is an investment in American Express.
In 2008, as the stock market dragged on and America found itself in the midst of a life-changing recession, Warren Buffett decided to invest $6 billion in General Electric (GE) stock. Buffett also invested $5 billion in fledgling Goldman Sachs in late 2008.
During the financial crisis, Warren Buffett also invested in several different companies.
Among them: Mars, Banks of America and Dow Chemical. The Week reports that Warren Buffett made $10 billion in the aftermath of the Great Recession, mostly relying on his own advice: “be afraid when others are greedy when others are afraid.” Although many investors exited the stock market, in general, Buffett first dived into individual companies.
It was recently revealed that Buffett’s own Berkshire Hathaway purchased 75 million Apple shares in Q1 2018.
The bottom line: Warren Buffett can maintain the virtues of an index investment fund for as long as he wants, but index funds are not the vehicle he used to create wealth. Buffett built his famous wealth bank by strategically investing in companies at the right time, not through index funds.
What’s wrong with investment funds?
Before you see where the idea is wrong, try thinking about the following theory.
We don’t think that investing in index funds is a bad idea. By and large, buying index funds and holding them over the long term is a winning strategy for investors. Just look at the results of the recent Standard & Poor’s report. This report showed how S&P 500 index funds have performed better over the past 15 years than 92.2 percent of funds with large “caps”.
If your goal is to save for retirement, then yes, you should absolutely consider using index funds as the bulk of your portfolio.
Especially if you can choose inexpensive index funds through a brokerage firm like Vanguard. With a long history of winning and some of the lowest running costs you can find, it would be hard to beat this strategy.
But if you want to become rich, that’s a completely different matter.
Although index funds offer one of the strongest long-term strategies for generating enough funds for retirement, they will not allow you to achieve Buffett-level success because the process is too slow.
That’s why we think you shouldn’t listen to Buffett if your goal is to become rich. Remember, Buffett didn’t become a billionaire by buying index funds—he got rich by investing his money wisely and becoming a leader in the business world.