Buffett's 4 Fundamental Investing Principles from the 2014 Annual Letter

If you're interested in growing your money, please please read Warren Buffett's annual letters. In this year's annual letter (I'm attaching the Fortune article that summarizes it), Buffett uses stories of two relatively minor real estate investments (one is a farm in Omaha, the other a retail property near NYU in New York). He uses these investments to illustrate some key fundamental investing principles:

1. Simple Analysis

In both cases, analysis was simple, meaning that Buffett felt he needed no unusual knowledge or intelligence to estimate revenues and costs. He was able to conclude that the investment had no downside and potentially had substantial upside. Actually, Buffett insists that you don't need to be an expert to get good investment returns, but you do need to know what you do and do not understand - and never make decisions outside of your comfort zone of competence. If you don't understand something, just don't get involved. If you cannot estimate what the assets will earn, it's not an asset you should be buying - look for something else. Buffett's approach (Value Investing) is about buying a good asset at a discount, rather than speculating that its value is going to increase at some point. 

2. Market Predictions Are a Waste of Time

"Forming macro opinions or listening to the macro or market predictions of others is a waste of time," Buffett says. It's tempting to base your purchases on the macro or political environment or the views of other people.  The point is that a good investment will deliver good returns in any environment (the farm will keep growing corn and students will keep going to NYU, thus making Buffett's investments minimally dependent on the economic and political fluctuations). 

3. Diversify and Keep Costs Minimal

You don't need to be a great stock-picker as long as you diversify and keep your costs minimal (for example, by buying the index funds).  American businesses have done fabulously well in aggregate (the Dow Jones industrial index advanced from 66 to 11,497, paying a rising stream of dividends), so there is no need to be a fantastic stock picker to do well.

Please note that when Warren suggests a future portfolio of 90% S&P index funds, he is talking about a very long-term portfolio. It is not meant for retirees with a short-term focus and high income needs.

4. Don't Time the Market

An average investor faces the danger of buying high and selling low (because they often gain the confidence to enter the market by the time it's already nearing its peak). Buffett's solution is to accumulate shares over a long period of time and to "never sell when the news is bad and stocks are well off their highs." Please read on...

Buffett’s annual letter: What you can learn from my real estate investments

Are You on the Right Path? How to Know for Sure

Why are some people confident that they are on the right path, and others doubt themselves every step of the way?

Are You Free?

There is a wonderful formula for anyone who is figuring out how to take the next step in his or her life: inner freedom. It is more than a formula, it is a state of being.

Inner Spring

Spring is upon us, the nature reminding us about an experience of inner spring that is available at any moment. Observe how nature renews itself every day and every season. Every new cycle brings about new beauty and new appreciation for life. Take an opportunity to rediscover that inner spring splendor is possible yet again.

Figuring out Social Security

The Joy Compass 12 Steps to Successful Retirement Series has been developed for Let's Talk Money! Sirius XM Channel 141.

Step 2. Figuring out Social Security helps you:
▪ Estimate the income you will receive;
▪ Navigate important decisions around early, normal or delayed retirement;
▪ Avoid a trip to the office and apply online;
▪ Prevent a big Medicare mistake; and more.

Retirees' Money Mistakes: 6 Perennial Pitfalls

The only mistakes to regret in life are those that could have been prevented. While all of us navigate the world of economic uncertainly, there are some fundamental principles that still hold. Keep them in mind, and you will avoid the common mistakes that retirees make with their finances. 

Take financial advice from friends and family over that of professionals 

I am proud of my age, because it signifies a certain amount of success, a certain degree of wisdom

I have an enormous amount of respect for Joan D. Saunders, both for the amazing job she has done as an editor of the Joy Compass book and for her courage to tune out any influences that could have prevented her from creating a life she thoroughly enjoys. Watch Joan looking smashing as Greta in this short trailer from an independent movie titled Wall Street Barbie.

Julia Valentine: I would like to start by thanking you for editing the Joy Compass book and many articles that appear on the website. I love the work you have done. You are such a great editor. Everything that you touch comes out a hundred times better. It’s been confirmed by friends and family, by everyone who has seen the “before and after” versions. You have received uniform praise.

Joan D. Saunders: Thank you — that’s what I’m here for.

A House of Light for My Christmas Gift

Having become a collector of experiences, rather than an accumulator of things, I take delight in all events wondorous, miraculous and warm to both my heart and my touch. This Christmas, my gift came unexpectedly when I walked into the Museum District Bed & Breakfast in Richmond, Virginia. My stay came at the end of a strenuous December book tour. The bus I took from D.C. was delayed, and I when I opened the door of the B&B, exhausted, my watch showed 1:10AM.

Retirement Reinvention: A New Mindset

Modern retirement is riddled with uncertainty and is much riskier than it was decades ago when there were many safeguards and veritable guarantees in place. The burden of assuring a suitable retirement nest egg has shifted from employers and the government to individual retirees. Even with this now common knowledge, far too many have still not adapted to the changes and find them self ill-equipped or, worse, entirely unable to retire when desired.