Warren Buffett’s Investment Advice: Why It’s So Hard to Follow

A year ago, I wrote a piece called Cash is King: Now What Should I do With It?

Warren Buffer Art Comments

Warren Buffer Art Comments


After going through all the responsible options of what I could do with our pile of cash, I added one last one: what if I just threw it in the stock market and tried to double it?

Obviously, the fear of getting stabbed and divorced by my wife told me that this wasn’t worth it—the risk was too high.

But you always wonder…what if…?

You’ll see that the market had just bottomed out and was on a path to a steady recovery. Maybe it wasn’t such a crazy idea to invest that pile of cash after all.

What Would’ve Happened
The day I published the story, the S&P 500 was at around 814. If I would’ve invested $10,000 in the S&P, I would’ve bought just over 12 “shares.” Today, those “shares” would be worth $14,238. That’s a 42% return in just under a year—an outstanding return.

What this Has to do With Warren Buffett
I’ve said this before many times: I’m a huge fan of Warren Buffett. I think his mix of intelligence, patience, and quirkiness is admirable. And one of his most famous sayings applies to my whole dilemma of investing (or not investing) my pile of money a year ago:

Be greedy when others are fearful and fearful when others are greedy

Back in March 2009, everyone was scared. From mutual fund managers to your average mom and pop store—we were all scared. No one knew what was going to happen to the economy and the stock market had just annihilated millions of dollars of people’s money. It was the perfect time to put Warren Buffett’s axiom to the test.

But that’s where the problem lies: I was one of the people that was scared. There was no way I was putting all my hard-earned money into a machine that so many were saying was broken and had already cost so many people their life’s savings.

And this is why Warren Buffett commands so much respect: he not only talks the talk, he walks the walk. He reacts differently than the rest of us to these situations: he trusts his instincts and doesn’t get caught up in the panic that most of us do. And believe me, back then there was quite a bit of panic.

This is why we can’t simply “invest like Warren Buffett.” You have to have the cash, the brains, and the ability to overcome panic and fear. Forget about picking the right stocks—that’s the least of it—the hardest part is not falling for all the hysteria and panic in the air.

The opposite is also true: the next time you see people acting greedy and feeling a little too comfortable with themselves and how much money they’re making in the stock market—watch out. Something bad is about to happen.
(Author: WC Porter)

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