Barefoot Investor: The Warren Buffett way for investing pays off
THE greatest investor in history, Warren Buffett, is essentially telling investors that he thinks his own stock is cheap. So who are we to argue, writes the Barefoot Investor.
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THE greatest investor in history, Warren Buffett, is essentially telling investors that he thinks his own stock is cheap.
NINA ASKS: Twelve years ago (May 2006), you wrote an article in the Herald Sun talking about why you were buying shares in Warren Buffett’s Berkshire Hathaway. I know the date because I followed your advice, and I am very glad I did!
I remember looking at the share price at the time and was astounded that a single share could be worth $59.
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Well, it is worth $217 a share!
Even better, the Aussie dollar has gone down since my purchase, so I am sitting on a 350 per cent total return.
I am wondering whether I should sell, because I could use the money to pay off my mortgage.
And Warren Buffett, now 88 years old, is older than my grandmother.
How long can he go on for?
What are you doing with your Berkshire Hathaway shares?
BAREFOOT REPLIES: I hope you bought a lot of shares!
If you thought the Berkshire Hathaway shares were expensive, just remember that what you bought were “Class B” shares. The original “Class A” shares are currently trading for $450,000 per share in Aussie dollars. That’s for just one share.
Yes, Berkshire is currently trading at all-time highs, for two main reasons:
First, Buffett’s decision to invest in his own shares, via a share buyback. In other words, the greatest investor in history is essentially telling investors that he thinks his stock is cheap. (Who are we to argue?)
And second, the US stock market is also at all-time highs. Berkshire is sitting on around $US111 billion in cash, presumably waiting to be greedy when other people are fearful. For all these reasons, I’m not going to be selling mine. However, I’m in a different situation to you, and I don’t have a mortgage. Just make sure you need to factor in capital gains tax when you eventually decide to sell your shares.
MIND THE ASTERISKS
MANDY ASKS: My 14-year-old son wants a debit card. He is a good saver and has a few thousand dollars in his bank account.
But he currently saves with Bankwest and they have an age restriction of 16 years for debit cards. I am thinking of changing his savings account over to Suncorp, as I think their interest for savings accounts is 2.6 per cent. Any suggestions for institutions that will offer a debit card to a boy of 14 years?
BAREFOOT REPLIES: Ah, the Bankwest Kids Bonus Saver! It’s like a slippery dip on a hot summer’s day … with a dog turd waiting for you at the end. It certainly looks good — earn 4.75 per cent*****, but then you get … asterisked.
* In addition to setting up a Bankwest Kids Bonus Saver, you also need to set up another Bankwest account, the Children’s Savings Account (which has a much lower interest rate).
** You only earn the bonus interest when you deposit $25 to $250 per month and make no withdrawals.
*** In any month that you don’t meet these conditions, the standard interest rate (currently 0.01 per cent p.a.) applies.
**** After 12 months everything over $1 in the account will be swept into your linked Children’s Savings Account, “so you can start afresh”, says Bankwest. Yes, you can start afresh … with all your kid’s cash in the lower interest rate Children’s Savings account.
Slippery!
OK, so the account you mention, Suncorp, pays 1.4 per cent, and a bonus 1.2 per cent if you deposit at least $20 each month and make no more than one withdrawal each month, so a total of 2.6 per cent. They also allow kids over the age of 11 to get a debit card. It’s OK, I guess.
But I’d be tempted to go with the CUA Youth eSaver, which pays 4 per cent p.a. with no pesky hoops to jump through, and link it to the CUA Everyday Youth Account, which will give him fee-free banking and a debit card for kids over 14.
(Note: I get paid nothing for mentioning CUA, though I do get a kick out of berating Bankwest.)
INDEPENDENT DINING
GEORGINE WRITES: I know you are probably being inundated with emails and messages about your new book (which is just freaking amazing!) but I wanted to share our experience.
Today we did the Grandparents’ Dinner Party from Chapter 3. Our eldest, 11-year-old Zeek, invited his grandparents for dinner.
I showed Zeek the Barefoot Burgers recipe and he was super keen, so he wrote his list and off we went to Coles.
He got his own trolley, and had his list and $30 to feed seven people. Not only did he clearly see where the cheapest items in store were, he came in nearly $6 under budget!
That night he turned the burgers into rissoles with a pasta side dish, steamed veg, plus the most divine chocolate cake I’ve ever tasted!
Zeek then brought the cake to the table and said, “I have an announcement: tonight’s dinner was bought, prepped, cooked and served all by me!”
The grandparents gasped, then he showed them his receipt, and how he’d successfully made seven meals (with some leftovers for dad’s lunch) for $24.25. We all cheered while he cut and dished his cake to us all.
Without your book I don’t think I’d ever have given Zeek the opportunity to do what he just did at his age. This has totally changed my view!
He has requested that he cook dinner every Wednesday (“Money Meal” night). And we are all for it.
I cannot thank you enough for the head-start our boys are getting. We are proud “cult” members for life!
P.S. Your mum’s rissole recipe is just wicked!
BAREFOOT REPLIES:
This is totally awesome.
Parenting is a tough and mostly thankless job. Yet what you’re doing is not only building up Zeek’s financial confidence, but creating memories that you’ll have long after he (successfully) moves out. So please keep taking pics!
Zeek, good on you mate. Keep working your way through the entire Barefoot 10 checklist, and keep me updated on how it all goes. Catch you round like a rissole (and I’ll pass on your mum’s kind words to my mum.)
Thank you for reading.
CRITICISM IS CRITICAL
AFTER 18 months of tapping and toiling away, I finally pushed my new literary baby into the big wide world.
And the very first review on Amazon?
One star.
(Amazon is being generous here, because you can’t click zero stars.)
Yet I actually punched the air when I saw it … true dinks!
I took it as a good omen, given my last book’s first review was also “one star”.
(An employee from my old publisher thought he’d try to generate some buzz, so he wrote my very first review — “great read!” — but then ballsed it up by clicking one star instead of five … and it’s still there today.)
What am I getting at? We’re living in a hyper-connected, hypercritical digital age, and you can’t control what people say about you.
Case in point, this week a bloke wrote that he’d seen through my covert operation of writing a book for kids and had unpicked the darker side of what I’m plotting: “He’s just hating on Commbank because they are in the same space he wants to be in … schools.”
Boom!
So, while revelations this week showed that Australia’s largest issuer of credit cards paid Queensland state schools almost $400,000 for the right to sign up school kids, apparently I’m trying to compete with them to sign up kids to … jam jars?
And I’m really trying to flog their parents a book … that they can borrow from their school library? (I have donated 10,000 books — one to every school in the country, so parents didn’t have to go out and buy it.)
Bottom line?
Make peace with the fact that if you’re doing brave things (working hard, starting something, backing yourself), you’re going to make some people uncomfortable.
And when it comes, don’t be surprised by criticism. Embrace it. It’s a sign that you’re treading your own path.
Tread Your Own Path!
BAREFOOT’S NEW BOOK
The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins). RRP $29.99. Available now in all good bookstores and online.
If you’ve got a burning money question, go to barefootinvestor.com and #ASKBAREFOOT
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice
Originally published as Barefoot Investor: The Warren Buffett way for investing pays off
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