Beware of Buffett quoting charlatans

Beware of Buffett quoting charlatans

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Some one read the post  “All is well in the equity markets – really? is it ?” ( http://rajan-ghotgalkar.com/2017/06/19/all-is-well-in-the-equity-markets-really-is-it/ ) and shot off the below comment.

Quote – There is liquidity but no alternative asset to invest, which is making people invest in equity by default and they justify their decision to invest in equity on hopes. If there is alternative asset all these liquidity and hope will vanish. In short term i don’t see any avenues to invest may be in long run some alternativr asset class may emerge or agian you may find equity at at beaten down rates as investment. All said and done why invest even 25% in equity when market is over priced ideally one must follow two basic rules of Warren Buffett for investment. Rule number 1 protect your principle and rule number 2 don’t forget rule number 1 (Signed : Name, ca.xxxxx@gmail.com) – Unquote

What better way to begin posting on Personal Finance I thought; when I have on offer such an excellent anecdotal crutch.

The writer of the comment is exactly the type of charlatan we retail personal investors need to be extremely wary of. We run the risk of being taken in by their confident blustering, leading us to believe that they are investment domain experts. The man is obviously proud of what he has said or else, he would not have named himself and given out his email address as well. That prefix “ca.” helps stake a claim for some credibility too!

Quote – In short term i don’t see any avenues to invest may be in long run some alternativr asset class may emerge or agian you may find equity at at beaten down rates as investment. – Unquote

Surely, I don’t believe that, retail investors can end up in possibly the riskiest asset class when it is most expensive just because of the “TINA” factor. The reasons why it is expensive, liquidity or anything else does not really matter. Which investment class we decide to buy into is really the last step in the ‘investing decision process’. It has to depend on the investors appetite and ability for risk, setting life goals and leading from that, their strategic asset allocation. In short, investors have to stick to their plan whatever the markets are doing.

Quote – ideally one must follow two basic rules of Warren Buffett for investment. Rule number 1 protect your principle and rule number 2 don’t forget rule number 1 – Unquote

A-ha here comes the classic trick; throw in a quote from Warren Buffett – an ultimate knock out punch as it were. I sometimes wonder how that grand old man was ever left with any time for investing at all if he was to make up all those quotes attributed to him.

Every retail investor should know that, whilst we should admire Warren Buffett, we do not have the scale and wherewithal to emulate him. Nor do we have his ability, tools and resources to take the risks he can. Remember, he is so big that, he can not only get his way with structuring deals which invariably have a hefty fixed income debt component but also give him considerable sway on that company’s future strategy and policies so as to guide his investments to profitability. Therefore, whilst its alright to idolise him and learn from his wisdom; we are best advised to adopt a more conservative approach when it comes to investing our nest egg.

Quote – All said and done why invest even 25% in equity when market is over priced – Unquote

So where do I get that 25% from? I intentionally left this portion last; because of two reasons (1) as I promised in the introduction (About-the Blog) to this blog “I intend going heavily short on theories and jargon and will focus on encouraging my readers to see beyond the fog which seems to engulf this subject”. I therefore, seek my readers’ forgiveness for having gone back on my word in my second post itself. (2) this blog is meant for retail personal investors and not equity investors (that includes both experts and pretenders).

Benjamin Graham in his treatise on investing ” The Intelligent Investor” has said ” We have already outlined in briefest form the portfolio policy of the defensive investor. He should divide his funds between high grade bonds and high grade common stocks. We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds.” 

This appears in Chapter 4 (General Portfolio Policy:The Defensive Investor) page 89, The Basic Problem of Bond-Stock Allocation. One would have to read this book to appreciate Graham’s reasons for saying this.

Interestingly, on top of this book’s cover (you can see it if you enlarge its picture) is a quote from Graham’s most illustrious student Warren Buffet that reads “By far the best book on investing ever written”.    

So is Graham still relevant in these times? Its an unequivocal YES from me !  He has seen everything that equity and debt markets can throw at us including the Great Depression. His book is a result of years of personal experience in making and losing enormous amounts of money; which has clearly made him a wise and prudent advisor. Interestingly, US Treasury 10 year yields were in ranges similar to those today. 

That’s enough of theorising – folks like me need a simple solution to my investment needs so that, I can continue to enjoy life and thats what I will try and write about. Graham in my view provides excellent advice.

What Bertrand Russell says here best summarizes my view of life planning and investing.

Of course that is not to ask that one completely disregards the wisdom left behind by investing greats like Graham. We have to understand their theories and apply them in our daily lives without turning them into an intellectual burden.

            It is important that, we seek advisors who are not only qualified in personal finance but matured enough to appreciate our real life situations, our priorities and goals and display the competence to use their knowledge in a manner that suits our scale and capacity for risk.

Our money has to provide us leisure with security so that we can keep doing what we are best at and enjoy the most out of life. Moderation in everything we do and aspire for is an easier path to happiness – and investing can be no exception.

 


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