April 3, 2014

For those of you who don’t know I’ve always had this fascination with Warren Buffet. I use to scratch my head and wonder why in the heck people like Justin Bieber or Miley Cyrus have these cult like followings, but after listening to this man speak I get it. I’m not going to lie if he ever had a speaking engagement in my town I would fight tooth and nail to get there because I value his expertise and knowledge that much.

Unfortunately Mr. Buffet has never had a speaking engagement in my area that I’m aware of and I don’t want to spend the money right now to attend the Berkshire Hathaway Annual Meeting. Therefore the cheapest way for me to gain insight into this man’s wisdom is through his annual shareholder letters. They are such an easy read that a middle schooler could read them and understand.

I was reading his most recent letter to shareholders and a couple of points he made resonated with me deeply and I wanted share his wisdom with you because I believe everyone should at the very least listen to what this man has to say:

Investing In Index Funds

You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”

I personally believe that ANYONE can manage their own investment portfolio if they’re willing to put in the work but Warren Buffett makes a great point here. Some people simply don’t want to deal with managing their own portfolio, they would rather be off focusing on what makes them happy. Similarly, changing your oil is probably one of the easiest tasks you can do with your vehicle. Yet, millions of drivers a year take their cars into dealers and mechanics to perform this simple task because they don’t want to be bothered with it. Could they learn how to do it on their own by watching a quick youtube video.  Yep! Less than 20 minutes to learn. So why do they keep paying for the service? The answer is quite simple it doesn’t interest them and they would rather pay someone else so they can focus their time elsewhere. I truly believe there is nothing wrong with that.

A lot of personal finance bloggers quote that they literally know nothing about investments, I know some individuals who laugh at those statements but I don’t because they’re being completely honest and they recognize their own limitations at the current moment. As Warren Buffett has said on many occasions if you do not want to be burdened with managing your portfolio simply invest in a well managed S&P 500 ETF over time.

Blue Chip Dividend Stocks

With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

I literally read this paragraph 5 times and then a couple more times before I lost count. In less than 100 words Warren Buffett validated my ENTIRE investment strategy. For those of you who do not know approximately 80% of my investments are geared towards dividend investing specifically. I do this because I am not concerned with building a nest egg. I personally view a huge pile of money as finite, $1 million is a large sum of money but by itself it’s almost worthless because inflation and expenses start chopping away at it immediately. I once read somewhere that wealthy people pass money down through generations and never withdraw the principal of their investments.  They simple use the money that is generated from those investments or continue to add towards the principal. That is how true wealth is acquired.

Takeaway

Investing in low cost S&P 500 ETFs over a long period of time will certainly be rewarding but to acquire true wealth, which is defined as having enough passive income to sustain your standard of living, dividend investing is the best strategy!

Do you prefer to invest in low cost ETFs or dividend producing stocks? Why?

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