Are you the next Oracle?
Opinion: Fancy yourself as a superinvestor? Kristen Lunman offers a few tips. Continuing our series on wealth insights, Crimson co-founder Jamie Beaton passes on what he has learned about the value of education.
So you want to invest like Warren Buffett. Buffett is America’s bestknown investor and the chairman and chief executive of Berkshire Hathaway, but he’s also a philanthropist who is generous with his gains. Considered one of the most successful investors in the world, he’s worth an estimated US$84 billion (NZ$127.9b). He bought his first stock when he was 11, and he’s been doing it ever since. His philosophy is simple enough: Don’t speculate, invest in quality companies and hold them for the long term.
Here are some tips you can take to be more like Buffett in 2020 – and some of his quotes to inspire you.
Start with what you know
‘‘Stick to what you know and your circle of competence.’’
With share investing, a good place to start is with a company that you know. Think about the brands you buy or a product that everybody loves. While there are no guarantees with share-picking, if you love a brand, and your friends or colleagues do too, then there is a chance the company behind it is successful – or has the potential to be. When you buy shares, you purchase a personal stake in that company, so you’re essentially backing the future of that company.
Consider a company’s advantage
‘‘Never invest in a business you cannot understand.’’
Invest in the brands you know, love and understand. Think about how the company makes money. A clothing retailer’s main business is selling clothes, whereas a streaming service is a monthly subscription. Consider if the company has a competitive advantage – ideally, there’s something about the business that’s hard to imitate. This could be intellectual property, highly innovative manufacturing, licensing, massive distribution reach, to name a few. Popular consumer companies with brand recognition that command a loyal following can also give a company an edge – the harder it is for competitors to copy the business, the stronger the competitive advantage.
Keep an eye on the news
‘‘I just sit in my office all day and read.’’
Warren Buffett spends five to six hours per day reading newspapers and corporate reports. We might not all have the desire to build an empire, but many successful people set aside time each day to learn. Consider scanning the news each morning to keep tabs on general market and economy news, or set up Google news alerts on the companies you’re interested in and their competitors.
Wealth takes time and patience to grow
‘‘Someone’s sitting in the shade today because someone planted a tree a long time ago.’’
As far as Buffett is concerned, he’s in it for the long haul. When investors buy and sell shares quickly and regularly, rather than letting investments sit tight and playing the long game, they’re active trading. Some investors rely on luck to invest their money when a stock is on the rise, only to pull it out when its share price is plummeting. But trying to time the market is not the best strategy. The market is volatile, so there’s a reason to let your money ride the wave; over time, the peaks should outweigh the valleys.
Warren Buffett spends five to six hours per day reading newspapers and corporate reports.
Find what works for you
‘‘Just buy an S&P index fund and sit for the next 50 years.’’
Picking individual shares can be time-consuming, which is why many investors turn to exchangetraded funds which bundle many stocks together. When individual companies come together into a diversified portfolio, they have a lot of power: The S&P 500 index – which includes approximately 500 of the largest companies in the US – has posted an average annual return of nearly 10 per cent since 1928.
The Oracle of Omaha’s portfolio
‘‘Another way to invest like me is to buy shares of Berkshire Hathaway.’’
Today, Berkshire Hathaway is the largest holding company in the world, owning more than 50 companies including Duracell, GEICO, and Dairy Queen and large investments in the likes of Amazon, Apple, Bank of America, Coca-Cola, numerous major airlines – and many, many more.
In many ways, the team at Berkshire Hathaway are comparable to fund managers – they’re always on the lookout for companies with growth potential, and when they find one, they invest in it or acquire it. If you invest in Berkshire Hathaway, you’re investing in all the businesses that they own or have a stake in, and when they win, you win.
If you were lucky enough to invest in Berkshire Hathaway shares at pretty much any point in the past 20 years, you probably owe a lot of your portfolio’s success to Warren Buffett. Under his management, the price of one Berkshire Hathaway share has skyrocketed from US$70,000 to its current price of US$340,000. BRK.A consistently outperforms the share market as a whole and has proven more resilient than the S&P 500 during recessions in the last 50 years.
Since Hatch offers fractional shares, though, you don’t need $340,000 to get your piece of the pie – you can buy however much you’re comfortable with and grow your investment over time.
Kristen Lunman is general manager of investment platform Hatch.
A$40 Facebook advertisement for education consulting company Crimson was Jamie Beaton’s best investment, the 24-year-old multimillionaire says.
Beaton and co-founder Sharndre Kushor started Crimson in 2014, to offer a consulting and tutoring service for international students seeking to attend elite American universities. Courses cost up to US$10,000 (NZ$15,000) for the programme.
That Facebook ad, run just after the company started, helped to raise awareness of what was on offer.
It then went into its first capital raise the same year, and raised $1.4 million. At the time, Beaton was just 19.
While he wouldn’t confirm how much his education consulting company is now worth, it is reportedly about $400m, after a $20m capital raise in October. Companies Office records show Beaton owns 31 per cent.
But Beaton said becoming a multimillionaire by 19 didn’t affect him much.
‘‘I generally try and have a very big lag behind my spending and my earning. I buy things that I can afford with what I had five years ago.
‘‘My family have been conservative with their spending and responsible. The main thing we invest in is education. They’re not very flashy people.’’
He admits the ‘‘small things’’ had become easier.
‘‘When I was young I played this game called Warhammer and I had to think quite carefully about which models I’d purchase. These days when a new Audi comes out I can buy it pretty quickly.’’
Beaton said he also did not believe in personal credit cards and had never owned one.
‘‘The credit industry is a multibillion-dollar industry because most people don’t end up paying them back.’’
He invested mainly in low index funds and stocks on the US stock exchange – not New Zealand real estate.
‘‘Investing is more important because I’m young. It’s a very good way to compound your capital at a much faster rate than bank interest rates.
‘‘A lot of people have made money in the property market in New Zealand because the market grew quickly between 2012-2017. But generally in a typical year US stocks outperform New Zealand’s property market. Also, it’s a bad idea to put all your money in a single house.
‘‘Say that area goes through a challenge, or the market turns. Diversification across real estate investment funds, as opposed to a single house, is strong.
‘‘Even employment share options are a great way to start if you’re working for a company you believe in.’’
Beaton said his worst investment decision was not investing in tutors earlier in life.
‘‘What I learnt at Harvard was many of the world’s strongest students in math went through quite rigorous training since they were quite young.
‘‘I would’ve liked to have that investment in myself at 10 or 11 instead of waiting until I was 17.’’
Last month, Beaton announced the launch of an online high school, Crimson Global Academy (CGA), to open next year.
Beaton said investing in quality tertiary education also opened up doors for people to increase their wealth.
‘‘Your academics can have a huge impact on your earnings tower. Not all universities are the same. In New Zealand there are many degrees that aren’t bringing value to the students taking them.
‘‘Make sure the investment you make in your education is worth the time and money you’re putting into it.
"Very important you’re putting yourself into programmes that are going to improve your earning power and carry serious commercial value to you for that monetary and time investment."
Anuja Nadkarni