05 March 2008
Why do people invest?
We can't talk for others, but we know why La Trobe offers the range of investment opportunities available in the
La Trobe Australian Mortgage Fund. Over the long-term, through our investments, we aim to increase your personal wealth. Wealth means different things to different people. Wealth may mean you can . . .
- Buy a house
- Upgrade your car
- Take an around-the-world holiday of a lifetime
- Retire earlier
- Buy a better house
- Buy a Ferrari or a yacht
- Start a business
- Install solar panels on the roof of your house
- Join the growing ranks of philanthropists
You get the picture. If we could sum it up in two words, they would be 'flexibility' and 'choices'. Wealth gives you flexibility and choices. But not all wealth is created equal. Some people inherit wealth. Some are career high-fliers, earning big business mega bucks. Some start, or some run their own successful businesses. Some make it in property. Some make it by simply saving as long and hard as they possibly can. Some get very, very lucky and win lotto.
If we were to simplify the great Warren Buffett's investing secrets, we'd suggest they were . . .
Invest only with companies who have sustainable competitive advantages, managed by smart, passionate people.
Invest into those companies over a number of years.
Hold those investments for the long-term.
Simple? If the formula is so simple, why aren't there more investing billionaires? The answer may be that most investors don't follow Buffett's simple investing secrets. Instead of following Buffett's simple steps, many investors use their own rules.
How to never lose money
When Warren Buffett speaks, the investing world listens. There are hundreds of classic Buffett investment quotes, most of them amazingly simple. One of our favourite Buffett quotes is . . .
"Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1."
Unfortunately these rules are impossible to follow. Even the great Buffett himself has lost money. We've all had losing investments. It comes with the territory. If you were afraid of ever losing money, then investing is not for you. We all can and will make poor investment decisions over our lifetime.
But by following Warren Buffett's simple three step strategy, your chances of losing money are likely to be reduced. It makes sense really . . . identify great companies, and hold investments for the long-term. If you get steps one and two right, over time, your risks should be reduced. Forget the daily ups and down of the stock market.
Reducing risks - How to preserve your capital
There is only one word to describe the state of affairs in world wholesale financial markets right now. It's a four-letter word, so for those of you who don't like swearing, look away now. Until the second half of 2007, many people hadn't used this word since 2003. It had simply disappeared from their vocabulary. Forgotten . . . ignored . . . gone . . . But now it's back . . . RISK.
Believe it or not, when you invest you immediately take on a level of risk. Believe it or not, stocks can go down as well as up. Believe it or not, private equity is not a license to print money. Believe it or not, the housing market can go down as well as up.
It would be easy for us to sit here and say that over the long-term, this financial markets crisis is likely to be totally insignificant. But that comment might be viewed as a bit flippant, given that some people may have lost money already. No-one likes to lose money, and we don't like it when people lose money.
So instead, we'll refer to another Warren Buffett quote and let you make up your mind, "A market downturn doesn't bother us. For us and our long term investors, it is an opportunity to increase our ownership of great companies with great management at good prices. Only for short-term investors and market timers is a correction not an opportunity." This is the mind set of a true "long term" investor!
Amongst all this hype we think it is more important than ever to think rationally. Don't jump the gun. Don't let fear make you pull out. There may be some backlash from the US subprime crisis, but much of this is caused by doomsayers and the fear they spread. It might all appear like it is unsalvageable, but in time the subprime crisis should eventually right itself, fear should finally ease, and things are likely to seem bright once again.
This sort of analysis is nothing new. Whatever the market conditions, when it comes to our loyal investors, we always maintain our time-tested rigorous approach, as summarised by our Three Commandments. They include . . .
- Never put all your eggs in one basket;
- Recognise a higher rate of return always equals higher risk; and
- Getting rich slowly will never go out of fashion.
* It is always prudent to carefully consider, with a qualified financial adviser, the suitability of any investment you may choose.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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