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Buffett’s Investment Advice: Avoid Losing Money June 4, 2014

Posted by shaferfinancial in Finance.
Tags: , , , ,

Investment strategies that don’t take Warren Buffett’s advice almost always end up bad for people. Now, that does not mean you will never lose money in an investment, but that your strategy should be one that minimizes that possibility. That is why Buffett’s Berkshire Hathaway will underperform in a strong positive market, but out perform in a negative market. He attempts to avoid losing money. The final result is overall over performance because as mentioned many times, negative numbers hurt more than positive numbers help.

This is pure mathematics. But there is a psychological reason that Buffett, as an investor for others understands. People can’t handle seeing the value of their investments go down. The data for this is pretty succinct and telling. When the market goes down, people sell in mass. That is a fact. [Of course, the opposite is true in that when the market goes up, people don’t want to miss out, and buy]

Understanding this I have structured my investments to minimize loss.

1. I own an EIUL, where the cash value does not go down. No matter what the market does, all gains are locked in from year to year.
2. I invest in dividend growth stocks. The dividends come in no matter what the stock value is that particularly quarter. But, just as important, I only buy when I think the price is fair. And I sell when the price has gotten so high as to be able to replace the dividends with an equally well managed business that pays higher dividends. My attention is on the dividends being produced not the market value of the company on any particular day. This changes the whole emotional component of owning stocks.
3. I own farm land that is cash positive and really have only a general idea of how much I could sell it for.
4. I have about half my stock portfolio in Berkshire Hathaway which as mentioned earlier tends to fall less than the market in bad years. [Note, that percentage is going down as when Berkshire springs up I sell some and move it over to the dividend growth section of my portfolio]

My clients that have followed similar strategies sleep well at night confident that the coming stock market correction will not devastate them either financially or emotionally. I know it has worked for me.


1. freedomvoyager - June 8, 2014

Reblogged this on freevinsight and commented:
Advice from Warren Buffett…pay attention!

2. Bristol Retirement planning - October 31, 2014

Really it is a nice blog, I would like to tell you that you have given me much knowledge about it. Your post is extremely helpful. I will keep following. Thank you for sharing this information.

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