It's an article articulating Buffet's staid and wise advice. The article itself... meh.
As to Buffet's advice...
The trouble is, money comes easily to those who have lots of money. Or... at the very least, to those who have disposable income, a proclivity to invest, and lots of time. In short, if you have money, it's really not that hard to accumulate more. If you don't have money, it's extremely difficult to accumulate more. That's not to say that if you have money and you're a yard ape, you can't very easily lose it.
Let me tell you a story about a guy with pretty much the same pre-crash insights as Warren Buffet, Steve Eisman and Michael Burry. This dude actually divested half his stock portfolio in the summer of 1997 because he was convinced that what was eventually to occur in 2008/09 was imminent a decade earlier. Why? Because all the same metrics that predicted 2008 in 2007 were available a decade earlier. Our guy saw that. Did he, like Burry, dive into the specific quality of all the individual mortgages that comprised a mortgage backed security (bond)? No. His background simply allowed him to understand what comprised mortgage backed securities. His personal experience and observations allowed him to understand how those mortgages were vetted (or not), issued, sold, and then resold. So our guy got spooked - and got out... in 1997. He was too early. He didn't count on a decade of bigger-fool liar's poker sustaining the illusion that the emperor was ensconced in sartorial splendor. Our dude was incapable of understanding the incredible gullibility of the general investing public. Despite insights into psychology and silly buying behavior, his investing approach was too rational to allow him to see such deep human foibles.
Hemingway, in 2007/2008 when everything went south, our guy was not surprised at all. In early 2007 he had read the Financial Times' take on the Bankers at Davos. He apprehended that the IBs at Davos knew they were being lied to by their peers. He knew that trust had been lost. Soon after that he saw "Cash" mutual funds "breaking the buck". He knew the end was nigh. He would have shorted the mortgage bond market... but he wasn't a player. He was just a random, blue collar guy who had been paying attention. Despite his prescience and his insights, he wasn't in the rarefied realms that would have allowed him to make such a short play. Nor did he have the cash to do so. So he watched. And he rode it out. He watched as the Dow plummeted to 6507. He watched as the S&P dove to 676. He quaffed another Margarita, chuckled, and watched as the NASDAQ sunk to 1268.
Then, in the Spring of '09, while on vacation in Mexico, he made a phone call and purchased $40000 worth of shares of a Nasdaq index fund. He bought at 1300.
Wow! What a genius, right? Not so much.
The reality is this. If he sold today at the current valuation of 7337, his $40,000 investment would be worth $185,766.
That's a fairly decent return, but hardly what our guy would have made if he'd had the access and ability to act appropriately upon his 2007/08 insight by shorting the market... an option that was inaccessible to him as a random investor from fly-over country. And , more important, hardly enough to do much with. A 100x return on a penny is a nice return, but it's earnings won't buy you a cup of coffee most places.
Now think about the "geniuses". It's not so much their insight that creates the popular perception of their gifted and talented status. It's the amplitude of their trades, and their ability to execute those trades. If our dude had already been a bazillionaire in '07, and had had the wherewithal to invest $400,000,000 instead of $40K, he would now be able to sell out and retire to an island with almost $2B. Let me say that again. If he had invested less than half a million dollars, he'd now be able to sell his position for almost 2 billion dollars. Genius, right? 'Cause that's FU money.
Let me recap and conclude: If you
pay attention and act rationally rather than emotionally; If you follow
your insight rather than following the panicked herd; making sound investment decisions is not that difficult. Investing, like medicine, is heavily obfuscated, but in the main not that difficult. The rich aren't necessarily smarter; They're just richer off the starting blocks. And maybe most important, their trades don't threaten their houses or their groceries.
