The Wealth Wizards: Investment Tips from the Money Masters
AUTHOR, ACTOR, FINANCIAL COMMENTATOR
In his latest book, How to Really Ruin Your Financial Life and Portfolio (Wiley, 2012), former game show host Ben Stein plays devil’s advocate by guiding readers into surefire ways to commit financial hara-kiri. “Pay No Attention at All to Taxes” is the title of Chapter 17.
But Stein’s contrary approach to financial advice belies a lifetime of financial smarts and wealth accumulation. For example, he still owns Berkshire Hathaway common stock he bought in 1983, when it sold for about $1,300 per share (it now trades for more than $171,000).
According to Stein, the best money advice he ever got came from his father, Herbert Stein, a Nixon Administration economist who lived his life with extreme financial prudence.
“I love real estate, but once, before I was about to buy an estate on the Eastern Shore of Maryland, my father warned me never to move into the neighbourhood of poverty,” says Stein, 68. Stein’s father wasn’t talking about this Chesapeake Bay enclave per se but was referring to taking on too much risk in any one deal. “It boils down to not having a meaningful amount of unsecured debt. It’s poison,” says Stein, who owns 12 homes.
As for getting rich, Stein advises to start young, buy stock index funds in the form of ETFs and reinvest the dividends. He also likes variable annuities, provided they are low cost.
“To me money in abundance is paradise and power and love. In scarcity it is terror and guilt.”
CEO, BERKSHIRE HATHAWAY
Do you have enough cash yet? Warren Buffett, the third-richest person in the world, says that he had all the money he needed by age 25, when his net worth reached $200,000.
“Money has given me the independence to do what I love daily. Beyond that it has no real utility for me but enormous utility for others. That is why I’m giving it away,” says Buffett, 82.
Indeed, Warren Buffett has joined pal Bill Gates and 112 other billionaires in The Giving Pledge, a rarefied group that has committed to giving the bulk of their fortunes to charity. So far Buffett has dispensed with more than $17 billion.
When asked what the best money advice he ever got was, it’s no surprise that Buffett turned to his holy bible, The Intelligent Investor, written in 1949 by value god Benjamin Graham.
“Chapters 8 and 20 have been the bedrock of my investing activities for more than 60 years,” he says. “I suggest that all investors read those chapters and reread them every time the market has been especially strong or weak.”
Here’s the Twitter-generation version of what is contained in those two chapters:
Don’t let the mood swings of Mr Market coax you into speculating, selling in panic or trying to time the market.
Only after careful analysis of a company’s ongoing business and its prospects for future earnings should you consider buying it and then only if its current price incorporates a significant “margin of safety”.
It boils down to avoiding losses by owning only stocks selling well below your calculation of their fair or intrinsic value. After that, the key is to keep your emotions in check and be patient.
“The best money advice I ever got is, ironically, the worst money advice I ever got,” exclaims Ramit Sethi, 30, personal finance guru, blogger and author of the bestselling book I Will Teach You to Be Rich (Workman, 2009). “Stop spending money on lattes.”
Sethi tried to save money by trimming little expenses like coffee, but it was hard. “We feel guilty, we overspend like we overeat and we think, ‘Okay, this month I am going to cut back.’ ”
“This taught me that money is not about willpower. Willpower is a depleting resource. We should focus on setting up systems, automating behaviours we want to happen.”
Sethi’s self-help shtick involves getting twenty- and thirty-somethings—of whom he has 500,000 online followers—to put as much of their financial life on autopilot as possible, setting up automatic deductions for 401(k) [pension contribution] plans, student-loan repayments, credit card bills. He even came up with a way to force himself to go to the gym.
“I realised I needed to put my gym clothes right near the floor with the shoes right there, so when I got out of bed my feet hit the shoes. Once I did that, my gym attendance went up.”
If you want to get rich, don’t focus on the minutiae. “Instead, get five or 10 big wins right, and you won’t have to worry about lattes.” Here are three: Invest early, get your asset allocation right and, above all, negotiate your salary.
Images From top: Getty Images, David Yellen / Corbis
- Remembering Chandrakant Sampat: India's original value investor
- Photos of the fortnight (April 25- May 8)
- Wealth wizards on the art of investing
- Nowhere to park the jet: Unique troubles faced by the ultra rich
- The Hamptons' Billionaire Lane: Where Wall Street's Richest Retreat for the...