I just got back from Omaha, where I attended the Annual General Meeting for Berkshire Hathaway – Warren Buffett’s company – so, it’s timely that I remind you there are only a TWO sensible ways to INVEST in stocks – BOTH recommended by Warren Buffet – plus one Speculative way:
1. Buy and Hold low cost, diverse Index Funds (check out Vanguard’s web-site, and others) – this is a long-term, low risk (if your holding periods are 30 years) strategy that can help you fund a normal retirement.
2. Invest in a FEW stocks in companies that are:
(b) have a large margin of safety,
(c) that you love, and
(d) are prepared to HOLD …
… until the rest of the market decides that they love them, too, at which point you cash out and go back to (a).
Anything else is SPECULATING – lots of people have made a ton in trading stocks and options (e.g. George Soros, but he was smart enough to know to quit gambling when you are ahead) – or UNDERACHIEVING such as following the herd and/or buying high-cost Mutual Funds.
You may be one of the few that can succeed in either of these alternative methods … but, please don’t offend the World’s Greatest Investor by calling it INVESTING …
We believe that according the name ‘investors’ to [people or] institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.’ [Warren Buffett]
So, there are only two methods that Warren Buffet would recommend (and one that he clearly would not) – one for the wise and the other for the even wiser – which one would you choose?