Buffett Quotes To Guide Your Portfolio… Plus: The Next Big Crypto Winner?
I hope you all had a wonderful Memorial Day weekend.
Usually as we head into summer, the old saying “sell in May and go away” comes to mind. Here’s hoping that’s not the case and we get some relief from what has been a rough market so far this year.
On another note, as some of you know, my colleague Jimmy Butts has ramped up coverage of the cryptocurrency universe in recent months. If you’ll remember, last year, he predicted Ethereum would soar — and that’s exactly what happened, to the tune of nearly 400%. I’ve asked him to tell our readers a little bit about his latest cryptocurrency prediction below.
But first, as one of the most successful investors of all time and one of the richest men on Earth, Warren Buffett has offered a lot of wisdom over the years. And while there’s a lot of wise words to choose from, his timeless principles over the years have made his reputation in the investing community as good as gold.
And rightfully so. Buffett’s Berkshire Hathaway investment portfolio has averaged staggering annual returns of 20% per year since 1965 — doubling the average annual return of the S&P 500 over the same period. In other words, every $100 invested with Buffett then would be worth nearly $1 million today.
With a track record like that, it’s worth examining some of Buffett’s sage investing advice to see how we might improve our own portfolio performance. After polling some of our StreetAuthority experts, I came up with a few of our favorite lines from Buffett over the years…
4 Favorite Buffett Quotes To Guide Your Portfolio
1. “Our favorite holding period is forever.”
It may not be trendy or sophisticated… But buy-and-hold investing — Buffett’s favorite strategy according to Berkshire Hathaway’s 1988 letter — is one of the few strategies actually proven to consistently make money over the long term. The proof comes from an Oppenheimer study, which found that the S&P 500 never suffered a loss over any 20-year period going all the way back to 1950. The extensive study also showed that short-term investing can be a bad idea, as the S&P 500 lost money 16 times in a one-year-period since 1950.
2. “If a business does well, the stock eventually follows.”
Don’t just buy stock if you want strong returns. Buy shares in a business you’d be proud to own, and be prepared to reap the rewards. Much of Buffett’s investing success has come from buying well-managed companies with solid economic moats (i.e. lasting competitive advantages), consistently high return on equity (ROE), and low debt. He also admires companies with leaders that readily admit mistakes, have the interests of shareholders at heart, and own a large portion of the company themselves. (You can see Buffett’s full criteria on page 23 of his 2014 shareholder letter.)
3. “Investment must be rational; if you don’t understand it, don’t do it.”
Buffett advocates owning established companies with household name brands and understandable business models. One look at Berkshire Hathaway’s portfolio should illustrate this point, as well-known and simple companies like Coca-Cola (NYSE: KO) and American Express (NYSE: AXP) continue to be some of its largest holdings, making the firm ten times (or more) than the original investment.
It doesn’t always work out, though… Buffett famously missed out on the initial big run-up in tech stocks like Apple and Amazon — but that’s because he always admitted that he didn’t quite understand tech. It was only years later after bringing on trusted, experienced money managers into the firm that he later decided to invest in Apple, for example. The point is most investors would be better off knowing when to “stay in their lane” and avoid what they don’t know, too.
4. “Diversification is protection against ignorance. It makes little sense for those who know what they’re doing.”
Yes, it’s true Buffett recommends that non-professional investors buy shares in diversified, low-cost S&P 500 index funds to avoid risk. But how can you beat the broader market when your portfolio is the market?
Buffett compares this to putting Lebron James on the bench during a basketball game: “If it’s your game, diversification doesn’t make sense. It’s crazy to put money into your 20th choice rather than your 1st choice. It’s the ‘LeBron James’ analogy. If you have basketball phenom LeBron James on your team, don’t take him out of the game just to make room for someone else.”
In other words, if you know an industry well (or work in it), you may have a better-than-average chance of spotting a good company and thus a potentially market-beating stock. And if you’re picking your own stocks, then it’s far more likely you’ve come up with only one or two really good ideas than a dozen. So as long as you’re aware of the risks, it can really pay to be “overweight” on your best ideas.
We can argue whether Berkshire Hathaway itself is a “buy” today, but there’s no denying that we can all profit from Buffett’s wisdom. Learn from the man himself and try to adapt his principles to form a sound, profitable investing strategy.
In short: Buy well-managed companies with wide moats, understandable business models, and in industries that you know well.
I Think I’ve Found The Next Big Crypto Winner…
Many may know the story by now. But the evolution of bitcoin has been impressive…
In August 2008, someone anonymously registered the bitcoin.org domain name. It was the first known appearance of the word “bitcoin.”
Then in October 2008, a computer coder going by the name of Satoshi Nakamoto published a white paper describing the basics of bitcoin.
While we don’t really know the true identity of Satoshi, the real importance is that he developed a solution to the problem of trust with traditional currencies.
He developed a new form of money.
Today, bitcoin is the most well-known and popular cryptocurrency. This digital asset isn’t issued or controlled by any person or government. And it operates completely outside of the banking system.
This is paramount in a world under increasing assault by hackers, identity thieves, and government surveillance. This is helping fuel the use of private digital “cryptocurrencies.”
Bitcoin may be the most fascinating and controversial development in money and finance in generations. And the underlying blockchain technology has the potential to revolutionize aspects of our economy, upending many established companies, and even entire industries.
But outside of the exciting future that Bitcoin and blockchain technology hold, is just how fast the currencies have appreciated.
For example, last year, in our annual predictions report, my team and I recommended that investors take a look at Ethereum. It went on to soar 398% in 2021. And for every example like this, I could cite dozens of smaller coins that posted mind-boggling returns last year.
Of course, ETH has retreated this year, but I still like it for the long run. And Bitcoin, too, for that matter. (I wrote about the basics of Bitcoin, and why I’m bullish, here. And I did the same for Ethereum here.)
That said, there’s another cryptocurrency that my team and I like. It’s far less known than either of those names, yet it may ultimately prove to have just as much upside as either one of them…
Similar to Ethereum, this crypto network describes itself as an “open, programmable smart contracts platform for decentralized applications.” Adoption of this network is increasing, with more than 478 projects built on the platform in the past 20 months. And its exceptionally fast settlement time and lower costs than alternative blockchains have investors extremely interested. In fact, its platform is said to be able to handle 4,5000 transactions per second. For comparison, Ethereum’s transactional throughput is 14 transactions per second (though, as I wrote recently, that will soon be changing, too).
This upstart digital currency is just catching the attention of investors, but there’s plenty of time to hop on board and ride it to massive potential gains. Unfortunately, I can’t share the name of this pick with you right now, out of fairness to my premium Capital Wealth Letter subscribers. But whether you’ve dabbled in cryptocurrencies already, or are curious about learning more, here’s what I want you to take away from this…
Remember that cryptocurrencies are speculative at this point. The ride will be volatile, so don’t bet the farm on these plays. But it’s still worth learning about this space — and even dipping your toe in the water as long as you feel comfortable. Because the potential upside here is just too good to ignore.
In the meantime, you can learn more about my latest predictions (including this under-the-radar cryptocurrency pick) by clicking here now.