Tuesday November 10 2009

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

Warren Buffett

The greatest stock investor of all time Mr. Warren Buffett, is not a stock trader. A stock trader is a person who tries to buy stocks when they are low and sell them when they are high. They make money on the difference, when they are right. It’s kinda like when you go to Las Vegas and put a chip on odd or even at the roulette table. If the ball lands on odd you win, if it lands on even you lose. Trading stocks on the stock market is just another form of gambling. Unless you have a WORKING crystal ball at home, there really is NO way to accurately predict which way a stock price will go. If you are very lucky and can spend all day watching the market for ” trends ” ( assuming you know what a trend is and how to spot it ) you might and I say MIGHT make money at it. Most financial planners and mutual fund managers fall into this category. Which is fine for them as they don’t usually use their own money. They get to use YOURS, and it doesn’t matter to them whether you make money or lose it, because they get to charge you fees for managing your money. Doesn’t that sound like a lot of fun. Fun for them, not for YOU, because most of the money in your Canadian RRSP’s and your American 401K’s is sitting in mutual funds of one kind or another. We are talking about trillions of dollars of your money, your ” retirement money “, your children’s ” college money ” all sitting in mutual funds. Making how much? 2,3, maybe 5% yearly, if your lucky. Do yourself a favor and take a close look at the fee structure of those funds. You will be shocked at how much of your hard earned money goes to them in fees.

There has to be a better way. I think Mr. Buffett learned that better way back in the 1960’s when he started investing in stocks. Instead of trading stocks, he decided to simply find well run companies that he thought would be around for a good long time, and that payed a dividend. He purchased stock in those companies and reinvested the dividends in more of the same kind of companies. Then slowly over the years he became very very wealthy. Mr. Buffett rarely sells stock in a company unless the management team of that company changes, and he doesn’t feel confident in the companies long term viability.

I believe that I will follow Mr. Buffett’s example , instead of the rest of the herd. 40 million in net worth CAN’T be wrong.