I am currently reading a great book about Warren Buffett, and I drafted this blog-post after reading a passage on Wednesday when I was flying from Denver to Washington, DC. We wrote a blog-post in March (https://kmalnati.wordpress.com/2014/03/05/centraldenverapartmentmarketreport/) about price increases year-over-year for the last decade. I often have a lot of Buyers ask me if they should be concerned about how HIGH apartment prices have gotten since 2011.
The Oracle from Omaha (Warren Buffett) has a great perspective about buying investments that he learned the hard way… see below:
In 1942, Warren Buffett was 11 years old and had been working odd jobs (selling concessions at a ballpark and golfballs he found at a golf course). Warren had saved up $120 during a five year period by working those odd jobs. After reading a book about the benefits of compounding interest (“One Thousand Ways to Make $1,000”), Warren decided to buy his first shares of stock in a publicly traded company. He decided to partner with his 14-year old sister, Doris, and paid a total of $114.75 for 3 shares of Cities Service Preferred for each of them.
Warren has been quoted as saying, “I didn’t understand that stock very well when I bought it.”
The reason Warren bought this particular stock was, because his father, Howard, was a stock broker, and Howard often suggested the stock to his clients. The stock dropped from $38.25/share to $27/share when market hit a low that June. Warren felt terribly responsible, so when the stock finally recovered, he sold for $40/share which equated to a $5/share profit for each of them. Doris is quoted as saying, “that’s when I knew what he (Warren) was doing…” However after they sold, the stock for Cities Service Preferred quickly rebounded to $202/share!!
Warren said that he learned three investing lessons at a very young age:
1. Do not overly fixate on the Purchase Price you paid for a stock (or other type of investment)
2. Do not RUSH hastily to grab a small profit
3. Regarding investing other people’s money… if Warren made a mistake, it might get someone upset at him. He didn’t want to have responsibility for ANYONE else’s money UNLESS he was sure he could SUCCEED!
Warren shared a story about WHY he wanted to earn money at such a young age: “It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.”
Story shared from pages 63 and 64 from the book, The Snowball: Warren Buffett and the business of life, by Alice Schroeder. New York: Bantam Dell, a Division of Random House, Inc.
I completely agree with Buffett’s advice. While its important to make sure you are paying an appropriate price for an investment, its equally important to “get in the game.” The worst mistake that someone can make is to freeze their investment dollars hoping to wait for prices to go down by timing the market. I have found that when investors try to time the market… investors tend to buy high and sell low. Even if you’re able to time the market perfectly, you potentially miss out on a valuable lesson. Your money works much harder for you when its invested rather than being stuck in cash.
Remember that all investing takes careful research and not all investments are created equal. My advice is that you just commit to the buying process and find the right building within the given market that you’re participating within. Analysis paralysis will always create the inability to act and succeed. Heed Warren’s advice and you will be a great investor!