Renowned investor and businessman Warren Buffett has many notable quotes. It occurred to me that many of our newsletter subscribers may not be familiar with the charm and wisdom of some of these quotes. For fun I’ll share a couple of his and a couple of mine as well!
Buffett: “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1”
While many people are chasing high returns, it is often more important to investing success to avoid losses. Did you know if you lose 30% one year, you need to gain 43% to get back to even. Lose 50% and you must gain 100% to recapture your losses! 100%! Professional investors manage risk much more strategically than retail investors.
As a financial professional, one metric I focus on is the Up-market capture ratio and Down-market capture ratio in a portfolio. Up-market capture and Down-market capture ratios are used to evaluate how well an investment portfolio performs relative to an index during a particular time period. While retail investors may focus on absolute returns, a professional focuses on relative returns.
Here are a couple examples of absolute return compared to relative return:
(A) Positive 10% is a good absolute return, but may or may not be a good relative return. If the overall market was up 20% during that same time period, then 10% is a lousy relative return!
(B) Negative 10% is a bad absolute return, but may or may not be a bad relative return. If the overall market was down 20% during that same period, then negative 10% is a good relative return!
Poterack: “In difficult times, we intend to lose money slower”
On Price versus Value…
Buffett: “Price is what you pay. Value is what you get”
Price, cost and fees are never unimportant. However, professional investors seek value where retail investors seek low cost. Show me someone who goes through life buying the cheapest of everything and I’ll show you someone who has been disappointed often. We all recognize in life that you typically get what you pay for and professional investing versus amateur investing is no exception.
Retail investors cannot compete with Professional investors. The relative difference in knowledge, experience and resources is dramatic. The amateur uses a knife to butter their toast while a professional surgeon saves a life. A basketball in the amateur’s hand seems flat compared to the same basketball floating in Michael Jordan’s hands. The examples are endless, including plenty where the “professional’ is really an amateur being paid to sell products.
Partner with a Fiduciary advisor and be wary of marketing designations like CFP®, ChFc and many others that have no regulatory standing and are often used by inexperienced advisors lacking actual industry knowledge and accomplishment.
Poterack: “Do you want to pay lower fees or make more money?”
Humor and wisdom make for memorable quotes. I hope you chuckled, learned something or both from this article!