Top value investor: The billionaire’s strategy you can use

From Dan Ferris, Editor, Extreme Value:

Managing your own money is much simpler than most people think it is.

The reason people think it’s complicated is that Wall Street wants it that way. If managing your own money weren’t complicated, Wall Street firms would go out of business.

It would be hard to imagine your broker, for example, calling you up and saying, “Hey, listen. You don’t need to do all this buying and selling all the time. All you need to do is let your money sit in cash most of the time. Then, when you find something really great, something that you know is a good, safe bet to make plenty of money – whether it’s 10 days or 10 years from now – call me up and I’ll buy it for you.”

Likewise, you’re not going to see Peter Lynch on TV saying, “You really don’t need our mutual funds. Most of them aren’t that great and never will be. You really just need to sit around and wait for something that’s so good, it’ll make you rich without taking unnecessary risks.”

OK, so don’t ask mutual-fund managers or brokers about managing money. Ask millionaires and billionaires who made their money buying and selling stocks, bonds, and real estate. They’ll tell you what to do. And it’ll actually work.

A few years ago, in Omaha, someone asked Warren Buffett about managing money. As usual, he cut through all the crap and gave advice that made sense.

“Your default position should always be short-term instruments. And whenever you see anything intelligent to do, you should do it.

“The best way to minimize risk,” says Buffett, “is to think.”

Jim Rogers is somebody else you ought to listen to on the subject of managing your own money. He used to work with George Soros. Rogers drove around the world twice, once on a motorcycle and once in a car, and wrote a book about each trip.

Rogers told author John Train in 1989, “Take your money, put it in Treasury bills or a money-market fund. Just sit back, go to the beach, go to the movies, play checkers, do whatever you want to.

“Then something will come along where you know it’s right. Take all your money out of the money-market fund, put it in whatever it happens to be and stay with it for three or four or five or 10 years, whatever it is.

“You’ll know when to sell again, because you’ll know more about it than anybody else. Take your money out, put it back in the money-market fund, and wait for the next thing to come along. When it does, you’ll make a whole lot of money.”

The only problem with this simple strategy of sitting in cash and investing only when circumstances are ideal is human nature. Nobody wants to do it. Nobody wants to be patient. Everybody wants to buy and sell quickly and make a fortune overnight. Judging from the results most people get, they really just want to buy and sell quickly, whether they make a fortune or not!

Of course, the average investor’s impatience is just another easy way for us Extreme Value types to get an advantage. We can sit in cash, wait for something that is too good to pass up, then buy it and hold on.

What could be simpler than that?

Good investing,

Dan Ferris

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