Simple Pound

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A few days ago I added a little gimmick to the sidebar that I thought those of you who are interested in (Personal) Finance would enjoy. Since I assume that most of my readers fall into this category, I hope you will all find it helpful… The new feature I’m talking about is the Library section which gives you an overview of the books I’m reading or have most recently finished.

As I’m going through a tremendous amount of finance-related books these days (in preparation for making a career change), you will find this section updated reasonably frequently. The sidebar gives you a preview of the book I’m currently at while the Library page shows you all the relevant books I’ve read together with a short opinion on how helpful and/or entertaining I thought they were.

All books are linked directly to Amazon should you consider purchasing any one of them.

Now you’re probably wondering why this post is called “Warren Buffet and Institutional Investors” while I spent all my time talking about my new idea. Well… there is an explanation. Since I want to share a particularly good story with you that I have come across in my most recent book, I thought it would make sense to introduce you to the Library along the way. But now it’s time to focus on Warren Buffet’s opinion of Institutional Investors. He quotes the following story in one of his letters to the shareholders of Berkshire Hathaway (his company):

Originally told by Ben Graham in the 1940s, it is still applicable to the markets today and is a wonderful description of the importance of investor sentiment (no matter how unfounded it might be).

A year ago on Simple Pound: What are we tracking? Top 5 indices to invest in

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I’ve come across a really good comment in the FT the other day and have kept the page on my desk at work every since - with the intention of sharing it with you guys. Due to copyright issues I won’t be able to recite the whole article here (nor would I want to), so I’m just going to quote you the best passages.

The original comment was written by Jonathan Guthrie and was published in the FT on Thursday, January 10th. The heading reads “Three cheers for falling property prices”.

“The assumption that rising house prices are good is deeply embedded in our culture. A belief in witches was too, years ago.”

“We pay a heavy price for the delusional comfort that comes from owning expensive homes, both in loan charges and distorted personal priorities.”

After discussing the amazing property returns we have seen in the UK over the last 12 years (160% on average, 193% in London), he observes the following

“Such inadvertent financial coups confer bragging rights at dinner parties from Barnet to Bromley. Yet the tiramisu-scoffing asset allocators could only realise their swollen capital if they relocated permanently to Barnsley.”

“The main beneficiaries of steep prices are therefore footloose retirers […] fly-by wrinklies too mean to sling younger relatives a few grand towards their own homes.”

He continues to wonder why people could possibly interpret rising house prices as something positive…

“[…] given that disposable income would, all things being equal, rise if mortgage costs fell. More Britons could then afford the ultimate contemporary status symbol, a full tank of petrol.”

…and examines the consequences of such an attitude…

“Television makeover mavens have shown soi-distant developers how to make a packet by tarting up a basement bedsit and advertising it as a garden studio.

Buy-to-let investors have piled into residential property in […] Balkan towns whose names they cannot pronounce.”

And he finally concludes

“My hostility to national property bingo reflects ambivalence at my own commonplace success in it. Like many Britons, my annual capital gains after costs have been equivalent to almost half my salary for no more effort than a little light decorating. But I am no richer as a result, unless I sell up and sleep in a ditch.”

His opinion is so different from the often-recited press view that you instinctively want to disagree with him. However, you come to realise quite quickly that he has an awful lot of perfectly valid points and the more thought you give his argument, the more you’ll see his point.

If you’re intrigued and want to read the whole article, you should still be able to access it here, but I’m not sure whether or not you might need a subscription? In any case, enjoy!

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Warren Buffett is possibly one of the most successful investors - ever, and with a personal net worth of roughly 30 billion dollars he is certainly among the world’s richest.

While one would expect complex technical analysis dominating his mind from the moment he wakes up in the morning, his investment philosophy boils down to something rather simple:

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” (source)

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