MoneyMerc

[Apologies for the first version of this post!  My editor must have accidentally posted the non-complete version ]

This is the second post in a series reviewing Warren Buffett’s letter to shareholders, which I think holds good lessons for us all.  [See Part 1].

On investing:

When investing, pessimism is your friend, euphoria the enemy.

If you take only one thing away from everything you learn this year, make this your mantra.  Treat everything related to your finances with pessimism.  The basic things to frown at are stock tips, great new funds, and anything that sounds too good to be true.  When everyone is smiling and patting themselves on the back for how good they’ve done, run the other way.

Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

Once again… my view is that the stock market is on a super-sale right now.  Stay the course and keep on socking your money away!

When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.

… Beware the investment activity that produces applause; the great moves are usually greeted by yawns.

Here I was thinking about index funds.  Not sexy, not complex, and not keeping you up at night.  I like sleep.

Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

Ah yes, here is the eternal reminder that inflation is constantly making us poorer.  It’s any easy point to forget in times like these (“3% less spending power?  WHO CARES because I’m 40% down!!).  But it’s like that little step-cousin who just will not go away.  Stocks go up and down, but inflation keeps beating you over your head, year after year.  Maybe you are allocated defensively right now (I’m personally having a little trouble putting newly saved money into stocks rather than just a money market for ‘just another week’).  When you get over that, hopefully soon, don’t forget about inflation and the need to beat it by investing in stocks.