In today’s article in the Press & Journal, Carbon’s Investment Director, Barry O’Neill, shares some useful advice about what we can learn from one of the world’s most successful investors, Warren Buffet.
In true Buffet style, the “Sage of Omaha” has already set out very clear instructions about how his wife’s inheritance should be invested after he dies. The advice is pretty much what you’d expect – keep the costs as low as possible, invest in a combination of cash-like short-dated bonds and a broadly diversified, passively managed stock market tracker fund.
Buffet’s motivation is the key to this particular advice, he wants his wife to have the best chance of investment success. So, as Barry points out, he advises her, in the same way as he advises all private investors, to avoid high fee-charging actively managed funds and fad products. Delving deeper into Buffet’s planned legacy, Barry notes that only 10% of the inheritance is to be invested in short-term government bonds, whilst the balance will be invested into US large company shares.
The plan is sound in many aspects, but illustrates a very extreme example of “home bias”. This phenomenon is common around the world, but is perhaps more understandable from American investors, because their domestic stock market accounts for so much of the world’s market capitalisation – currently more than 40%. However, Barry points out the well documented academic evidence on the benefits of diversifying across countries, asset classes and sub-asset classes as part of any modern investment portfolio.
It is an interesting article which demonstrates certain similarities between Buffet’s and Carbon’s approach to investment; keep costs low, diversify, buy inexpensive companies and hold for the long term.
You can read the whole of Barry’s article here or by clicking the image below.
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You can view Barry O’Neill’s profile here.