Good investment strategy that practice by Warren Buffett often mentioned that he enjoy making money and watching it grow, and it is even enjoyable if you can defeat the opponent. I assume you too want to earn high return on investment while having fun of it. It is not actually difficult if you have a clear investment strategy through a very good investment management skills to outperform just as easily. So, can you win the game of investing? Yes, you can if you willing to put some effort into it.
Mutual fund, index and common stocks
The odds to beat the S&P 500 index and the market are only one to five if you invest in actively managed mutual fund and this is indeed very low. To improve, you might want to invest in index as their return are much closer to the markets returns. By doing so, the odds in beating the market increase to four instead of one to five. Are you just satisfies with that when you can yield much more higher returns in investing in common stocks for the long run and enjoying the process by learning the principles and effort like Buffett have laid out. Peter Lynch, a great investor has saying that an amateur who devotes a small amount of time to study the companies in an industry he or she knows something about can outperform 95% of the paid expert who manage the mutual fund in market analysis, why can’t you!
Based on historical record, the expected return on the market is 7% to 10% per year. In mutual fund of 8% return on average will be 2% lower from 10% as if taken as benchmark. Inital investment of $1000 will return in $6,848 in 25 years time. But if in stocks, if you are only able to develop 1% return advantage above the market, which is 11% per year, with the same amount and timeline, you will have $13,585 in return! Another advantage in investing common stocks is that you will pay lower taxes.
Even if you decide not to put all your money under your own management and by acquire a professional investment company to your service, but you will also find it worthwhile to take charge some of your investment on your own and learning a great experience in the time. Buffett investing philosophy is simple as it may seems but not easy. It is simple in the sense that all you need to do is to identify outstanding business that are run by competent and honest manager and the stock is selling at reasonable price. Discover yourselves of those businesses as you go through this learning curve.
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