How To Become A Successful Investor? Being a successful investor is difficult. The market can be very random and completely irrational much of the time. There will be instances where the stock market goes down 50% and there will be instances where the market doubles. The unexpected occurs a lot. Good companies can trade for cheap prices and cheap valuations can get even cheaper. Blatantly overvalued companies can double or triple and then double again, squeezing the shorts. Due to the unexpected nature of the market, shorting anything is potentially very dangerous. Successful investors generally do not short as the market can be irrational longer than investors can be solvent.
While frustrating, being a successful investor definitely pays off due to the magic of compound interest. In large part due to compound interest, a man that needs no introduction, Warren Buffett of Berkshire Hathaway became one of the richest and most respected men in the world today. With Buffett’s excellent and arguably unmatched track record of investing in mind, let’s take a look at what the Oracle of Omaha recommends in terms of successful investing. Below is an excerpt from Buffett’s shareholder letter in 2013.
My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.
(It is important to note that the 90% equity 10% bond mix Buffett would adopt is too aggressive for the normal investor, and the traditional mix is usually 60%-40% or 40%-60% or even more in favor of bonds depending on an investor’s age. By virtue of being ultra-rich, Buffett’s Trustee can afford to be more risk-taking)
According to Buffett, avoiding unnecessary fees and passive investing are two key tenets of successful investing and fortunately, many ETFs, such as the SPDR S&P 500 ETF Trust (NYSE:SPY), iShares Russell 2000 Index (ETF) (NYSE:IWM), Vanguard 500 Index Fund (NYSE:VOO), iShares Barclays 1-3 Year Treasry Bnd Fd (NYSE:SHY), and PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) fit the bill. With that said, lets take a closer look at some of the key ETFs that are tools to addressing the question of ‘How To Become A Successful Investor’? Click next page to see some of the ETFs. For those of you interested, also check out the article, ‘Easy Money: The 10 Most Successful Investors in the World Today‘.