Well I'm finally back after a long break! I obviously have to make this blogging more of a regular habit, because as far as I know, bloggers are not supposed to take multiple days in a row off. Over Thanksgiving week I had a little time here and there to think about what to write about, and there is A LOT!
Uncle Bob recently sent me a great thought for investing, which I will share:
"Buy good companies. Don't pay a lot for them. Hold them for a long time."
I asked him where he got the quote, and he said it was paraphrased from something Warren Buffet said. So of course me being me, I had to find the words of the great Mr. Buffet (no relation to Jimmy-- that's an urban legend) myself. And it is this:
"Build a snowball on top of a very long hill, start very young and live a long time. Keep expenses low."
That snowball has to roll down the hill to grow bigger & bigger. Obviously. Good advice from the 2nd wealthiest person in America (fellow philanthropist Bill Gates is #1 for 2014).
So what do Uncle Bob & Warren Buffet mean when they say to buy good companies?? They don't mean go out and literally buy the whole business, they mean to buy ownership shares of a corporation. They mean to buy stock.
When you buy stock, you are literally becoming a partial owner of the company. Stocks are traded in what are called exchanges. These exchanges are located worldwide. For example, the NYSE (New York Stock Exchange) is one of the most famous of these.
Companies sell stocks to raise money. When you buy a stake in a company, you pay whatever the shares cost. This gives the company more money to invest and I'll say it again-- makes you a partial owner.
Companies can also raise money by borrowing. Bonds are essentially loans that a company or the government will pay back over time, with interest. Bonds do have their place in investing, but in general, stocks perform better than bonds.
I will go into more detail about bonds on another day, but for now let's focus on stocks. Which brings me to a few more Warren Buffet quotes:
"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.”
"You can't buy what is popular and do well."
“Never invest in a business you can’t understand.”
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”
So in general we are seeing some pretty sound advice:
What something costs and what it is worth are often 2 different things.
Buy good, solid quality items on sale rather than buying over-priced and/or poorly constructed stuff that may fall apart after a few years.
What's hot today may not be so hot tomorrow. Buy what you can live with comfortably, whether it's a comfortable, well-made couch or a safe, solid dependable car. It's your money, so choose wisely!
Know what you're buying and ask yourself, will people still be interested in 20,30, 40 years? Coca Cola has been around since 1886 (with a few notable ingredient modifications to its mainstay product). Clearly people have stayed interested for the long haul.
Beware of bank savings accounts or any money market account. They have their place, but are for one thing and one thing only in my opinion: a parking place for money you intend to spend on life's necessities. It's the money you use to pay bills.
So with these concepts in mind, we can start to weed through the over 6,000 publicly traded stocks!! Aaagh!