Buffett’s Buying – But Should You?

by Joseph · 1 comment

in Investing

If you read any financial news at all, then you’re likely to have read about Warren Buffett, the “Oracle of Omaha” and his proclamation to the world that he’s buying stocks.  A would-be investor would naturally assume that if Warren Buffett (who has made his fortune from the stock market) is buying then now is a great time as any to buy themselves.  However this logic is flawed, on the basis that what’s best for Buffett may not be best for you.  Let’s take a quick look at the facts.

Warren Buffett is extraordinarily wealthy

The point here is that Mr. Buffett can afford to take risks that some of us may not be able to take.  He’s wealthy beyond most of our imaginations and if he loses half of his fortune by taking chances in the stock market he’ll still be wealthy beyond our imaginations.  With a net worth of $62 billion (as reported by Forbes in March of 2008) he’s got plenty of room to take risks.  We however may not be so wealthy and may not be able to handle losing all of our cash is poor investments.

Warren Buffett admits that near-term we’re going to see more pain

While I’m no believer in market timing (it just can’t be done without some degree of luck) it’s still important to remember that we’re likely to see more pain in the economy over the coming months.  With this being the case we may still see more fallout on the markets.  Things will eventually get better, but in the meantime it might not be quite the best time to throw all of your money into the market.

Being greedy has always worked for Warren Buffett

Moving away from playing the devil’s advocate I want to point out that Warren Buffett is, in fact, the richest man in the world.  He has gained his fortune from investing in companies and he is likely to continue to increase his wealth. He has a rule for investing in companies, which I’ll quote for you now…

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful

This rule has played out well for Mr. Buffett over the years.  If there has ever been a time when people are fearful it is now.  Thus if you are willing to follow the mantra of the Oracle of Omaha you may do well for yourself over the long-term.

Follow these rules, and you’ll be okay

We absolutely have to pay attention to what others are doing when it comes to investing, but more importantly we need to pay attention to our own personal needs.  The question is “should I buy?” and the answer is that I just don’t know.  It’s going to be a personal choice based on hundreds of variables.  I can’t answer that question for you, but I can help you answer it yourself.  Based on what we’ve learned from Warren Buffett’s behavior we can formulate a simple list of reasons why investing now may or may not be in your best interests.

  • Don’t invest anything that you can’t afford to lose
  • To lower your risk it might be best to invest smaller amounts over a long period of time
  • Diversifying your portfolio can help you to avoid unnecessary risk
  • Being greedy has worked for Warren Buffett… can you make it work for you?

Be careful out there.  Don’t risk more than you can afford to lose, but please do take advantage of this fantastic opportunity to invest in great companies that will still be around after all of this mess has blown over.  You’ll be much wealthier for it in the future!

{ 1 comment… read it below or add one }

Blake October 21, 2008 at 7:15 am

Warren is such a class act. It’s definitely reassuring to see one of the greatest investors of all time plunking down money when everybody else is buying into the gloom and doom that the media likes to fuel.

Maybe I’ve said it before on here, but the people who came out of the great depression the wealthiest were the ones who bought when no one else would and got great companies dirt cheap.

Blakes last blog post..Where You Are Now Shout-out

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