HOW do we balance short-term gains against longer term benefits? Established value investing guidelines can have broader applications.
Sunny, generally calm, always beautiful, truly Asian Malaysia is now awash with election fever. Thankfully, like most bouts of physical fever, this too shall pass.
Till then, though, regardless of which side of the political divide you stand (or sit) on, it seems to me you’re weighing the pros and cons of the various candidates. On Election Day — assuming you qualify to vote — you will cast your personal, precious ballot in one of two ways, based on:
1. What’s best for you, today; or
2. What’s best for all Malaysians to come, tomorrow.
I hope you won’t lazily abstain from voting and also don’t irresponsibly spoil your ballot papers. There is no country on Earth that is 100 per cent perfect; Malaysia is no exception. Nonetheless, this is our home. We should, therefore, be the ones who determine its future by proactively exercising our democratic right (and I dare say obligation) to vote wisely.
In figuring out what’s best for you today AND what’s best for all Malaysians tomorrow, I hope your deepest ruminations are made simpler by my two suggestions:
First, we should all weigh our state and federal choices meticulously. Second, as we do so, I think it’s tangentially fascinating that from a purely financial planning perspective, those same two verbs — voting and weighing — play vital roles in our own short- and long-term wealth accumulation initiatives. Allow me to explain.
LESSONS FROM BUFFETT
Regular readers of this column and, frankly, most others also interested in serious long-term investing are familiar with the person or, at least, the name Warren Buffett.
He is the world’s third wealthiest individual and the chairman of investment holding behemoth Berkshire Hathaway. (If current global wealth rankings interest you, visit www.bloomberg.com/billionaires/).
Buffett is set to turn 88 this August. He is a delightful, spry octogenarian who is not just a genius at weighing the calibre and character of those he chooses to work with and, of course, at amassing phenomenal wealth, but is also an effective teacher of business and investment principles.
Buffett began working part time earning his own money as a child, not because his family was impoverished, which it certainly wasn’t, but because of his healthy appreciation for honest hard work, independence and delayed gratification.
Later, as a young man in his 20s, he learnt about managing investments in world-beating fashion from his one-time Columbia University professor Benjamin Graham. Buffett later landed a plum job working for Graham.
Ben Graham was the lead co-author of Security Analysis, first published in 1934 when Buffett was four years old. That tome altered the way the world looked at investing in the capital markets (comprising equities or stocks, and fixed income or bond investments.)
And 15 years later, in 1949 when Buffett turned 19, Graham’s follow-on book The Intelligent Investor was published. Amazingly, both are still in print today. They deserve prominent shelf space in the library of every personal finance buff. Note: The Intelligent Investor is slimmer than Security Analysis and much easier to read.
Buffett has referred to The Intelligent Investor as the “best book about investing ever written”. A particular sentence in it seems to have leapt out at the young Buffett and scorched its philosophy onto Buffett’s prodigious investment brain:
“Investment is most intelligent when it is most businesslike.”
For decades I have been intrigued by the logical, profitable precepts of value investing espoused by Graham and his far wealthier, more famous disciple Buffett. (To hear my personal thoughts on those investment giants, download my BFM Radio podcast 3 Investing Lessons from Warren Buffett at www.bfm.my/rns-rajen-devadason-rd-wealth-creation-3-investing-lessons-fr...)
If you’ve been paying attention to the trade tariff-related shenanigans emanating from Trump’s White House, you’ll know investment markets are once again exhibiting elevated levels of angst and, therefore, volatility. In due course that too shall pass, but not before a lot of portfolio wealth is transferred from weak, nervous speculators to stronger, calmer investors.
Predictably, therefore, I find my primary function nowadays is steadying the nerves of my financial planning clients by reminding them their emergency cash reserves are well in place and that, in due course, their wealth compounding will resume when investment market stability and strength return.
WEIGHING WHAT’S MOST IMPORTANT
In Buffett’s latest letter to the shareholders of Berkshire Hathaway, he latched onto a well-known investment aphorism coined by Graham.
Buffett wrote: “Stocks surge and swoon, seemingly untethered to any year-to-year build-up in their underlying value. Over time, however, Ben Graham’s oft-quoted maxim proves true: ‘In the short run, the market is a voting machine; in the long run, however, it becomes a weighing machine.’”
In our lives, whether we perceive ourselves primarily as investors, businesspeople, corporate ladder climbers, or just regular citizens, we would be wise to heed Graham’s wisdom by taking the long view and focusing on what’s most important to us and to our children. In my case, and probably in yours, that involves ignoring mere short-term voting “noise” caused by emotion-driven changes within the relevant investing population.
We should, instead, determine and decide to (1) stay calm; (2) patiently weigh the long-term economic value of our investment choices; and (3) manage, rebalance and reallocate our investments intelligently to steadily compound our trans-generational wealth.
© 2018 Rajen Devadason