During my second year at college, I thought that investing was easy. I read about options, paper traded for a few months, and then solicited my friends for investments. Many of them invested in my hedge fund – “The H Fund”, which I started with a friend. In total we had $26k, which was quite a lot considering how young we were.
The fund survived for a few months, even being profitable for a short amount of time. In the end, though, we lost all of the money. Luckily I have awesome friends who understood the risk, and no one was mad. Still – I learned my lessons and stayed out of the stock market for years.
For some reason or another I started reading about Warren Buffet. For those that don’t know, he is the second richest man in the US, with a worth of over 40 billion. What makes him exceptional is that he is the only person on the top 100 richest people list who made his money through investing.
Facing that fact, it’s safe to assume that neither you, nor any of your friends are better investors than Warren Buffet. I like to think that I could do anything, but there is no way I would be willing to put in the time necessary to become better than WB, if that’s even possible. If I’m not going to be the best investor in the world, the next best choice is to have the best manage my money. Luckily that IS possible.
In 1965 Warren Buffet took over a company called Berkshire Hathaway, a textile company. He soon turned it into a holding company and used it to buy stocks and whole companies. It was made into a public company, enabling anyone to invest and mirror his returns. Since 1965, Buffet has averaged a 23%+ annual return. The market indexes have averaged around 11% over that same period, and have been far more volatile. In fact, Berkshire Hathway has only had one losing year since inception, with only a 6% loss.
After doing more research, I realized that there is no better way to manage my money than to put it all in Berkshire Hathaway. I’ve watched interviews with Buffet, read books, and read his annual shareholder addresses. His number one goal is to not lose money, with his secondary goal being to make great returns. With a track record better than any other investor in the world, it’s an easy choice.
Berkshire Hathaway is broken up into two types of shares, class A and class B. Class A have never split, and thus are worth over $110,000. This isn’t practical for all investors, so they created Class B shares which are worth around $3600. Both shares increase or decrease by the same percentage, so it’s fine to just buy B. You don’t get voting rights with them, but your vote doesn’t matter anyway.
Here’s how I do it. I deposited $4000 in my account to start off. I bought two shares of Berkshire Hathaway – one outright and one on margin. Margin costs 10% per year, but Berkshire Hathway averages 23%, so I’m not concerned. Every time I get paid from work or sell something I put 20% of it in my account, which decreases my margin exposure. Once I own that margin share outright, I buy another one on margin.
Disclaimer : Since I own stock in Berkshire Hathaway, I theoretically benefit from you buying shares as well. This has nothing to do with why I recommend it, since that benefit is totally insignificant, and I don’t plan on selling my shares for many many years.