The stock market is going through a hiccup phase, a series of ups and downs which, I suppose, is better than the plummet of 2008. Still, constant fluctuations are nerve-racking, so when I saw an article on investing by the “Oracle of Omaha,” Warren Buffet, I gave it my attention. (“Why I like to Think of Stocks Like Farms,” by Warren Buffet, Fortune, March 14, 20014, pgs 71- 76.)
Buffet’s counsel is simple, but be warned, he’s not offering investment advice nor am I. What he does do is direct his readers to a book he bought in 1949 that changed his life: The Intelligent Investor, by Benjamin Graham. Buffet sums up its message in two sentences.
…accumulate shares [of stock] over a long period and never sell when the news is bad and stocks are well off their highs. Following those rules, the ‘know-nothing’ investor who both diversifies and keeps his cost minimal is virtually certain to get satisfactory results. (Ibid pg. 75.)
My experience corroborates that view. Time is the friend of the patient investor. But diversification is key, too, because one day an agricultural stock in your portfolio may be down but a copper stock may be up, keeping the overall value of your nest egg, hopefully, reasonably stable. For the small investor, mutual funds are a good way to get diversification. Putting your dollars with the dollars of thousands of investors allows you to nibble at enough stocks to provide a measure of security. True, mutual funds don’t time the market. They invest during the best of times as well as during the worst, but history shows that the trend in the American market is up. The youth who buys General Electric today will have made quite a profit in 40 years.
Not long ago, a young woman asked what she should do with a $50 gift she received. I suggested she put the money in her mutual fund. The corners of her mouth turned down like an upended bowl. She didn’t care for my advice, but I stand by it. $50 spent today is gone forever. $50 invested in the market is a gift that keeps on giving.