KOLLIG: A ‘buffet’ with hints about equity and investments

I actually thought it to be a good time in markets to write about shares. Equity is the asset class that is subject to high volatility but that renders the highest growth over a longer term.

Warren Buffet, a well-known investor and the “father” of Berkshire Hathaway (this company yield an unequalled compounded growth of 19.7% in shareholders wealth over the past 50 years) shares his investment philosophy every year with shareholders in Omaha, Nebraska.

The power of compounded growth is only to be obtained by investors in equity who shows a lot of patience whilst markets run the bulls and break the bears.

I have read various articles in financial magazines and newspapers lately relating to Buffet’s tips given at his investors function during the first weekend of May and have summarised those as follows:

• Limit your risk by getting probabilities (in equity growth) in your favour. Choose the option where the possibilities of success are highest. Do not invest in a sector you do not understand. Buffet never invested in the mining sector – not because it is bad – but because he does not understand it.

• Keep it simple. Complexity brings the brake pads. Focus on what really matters.

• Watch the Company rather than the Share. Ethics applied by company management, how they think about matters and whereto they allocate capital, is important. Do not be too concerned about macro-economic forecasts.

• Total integrity and honesty. When you work (invest) with people you can trust, you enhance your chances to achieve your goals.

• You have to incorporate a margin of safety. Buffet’s safety net consists of a focus on value more than price. Rather pay a little bit more for a share in a quality company.

• Think long term. Be patient. Buy when your homework done on a company’s growth potential, shows a buying opportunity.

Buffet always says that to invest in equity is a very easy thing to do. All you have to do is to patiently wait, but when you see the opportunity, you should not hesitate to go big.

Regards ’till next time.

* Koos de Wet is a financial planner at PSG Wealth and a member of the Fiduciary Institute of South-Africa. Readers can contact him at 015 491 2020 / 082 881 467