The best Warren Buffett, Jack Bogle and Terry Smith advice

There’s still plenty to learn from the investing giants, says Tom Rodgers, beyond being greedy when others are fearful.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Wisdom is a wonderful thing. Most of it comes to the investor in hindsight, years after they have decimated their portfolio with some ill-judged biotech or high-growth-can’t-possibly-fail emerging market pick.

Any advice today comes as half the countries in the world seem to be heading towards recession territory. So what is there still to learn from the giants of the investing industry?

One caveat: my favourite Warren Buffett quote, beyond being “greedy when others are fearful,” is not actually one of his. It originated with a political cartoonist whose name is lost to history. But the message is still meaningful.

And anyway, most of the clever things a person comes up with will get attributed to someone more famous. Winston Churchill didn’t say half of the funny aphorisms credited to him. A good portion of Oscar Wilde’s best belong to Noel Coward, or George Bernard Shaw.

In a 1999 article for Fortune, Buffett quotes a line about dreaming of a day when he would wake up to a headline that said: “There was no trading on the New York Stock Exchange today, as everyone was happy with what they owned.”

One of the worst things we can do as investors is to panic when the market is going down. If we have done our due diligence, we can be confident that we have bought profitable companies with solid track records, albeit at below average valuations, and that they will continue to produce the goods whether the Footsie is in the grip of the bulls or the bears.

Similarly, the best advice from Vanguard Index Fund pioneer Jack Bogle was to: “Buy everything and hold forever.”

Of course, we don’t just buy one of everything. We do our research first, then we stick with our choices and only drop them if the sums no longer add up.

The name’s Smith, Terry Smith

That brings us to Terry Smith. The Fundsmith head honcho has three simple rules for finding companies to include in his hugely popular mutual fund:

1) Buy good companies
2) Try not to overpay
3) Do nothing

There’s a reason that ‘try not to overpay’ is second in this list,” says Smith. “Most people seem to spend all their energy on finding cheap shares when instead they should be focusing on buying good companies.”

Part three of the equation: do nothing, means we shouldn’t jump in and jump out of trades to try to minimise losses. The message is to buy well, and hold.

One of Smith’s favourite methods to value a company is to look at profitability via return on capital employed, and competition.

Asked why the Fundsmith fund held on to Facebook after its multiple management missteps, Smith retorted: “Tell me this: if you think Facebook, and WhatsApp are going to disappear – and of course it’s possible – what is the company you think that is going to replace it?” We might not like Zuckerberg et al, but they do have 2bn users and a nearly ubiquitous messaging app.

Our investment decisions should follow the same logic. First and foremost: is this a profitable company? Does it manage its margins well? Does it outperform its rivals? It may not seem like life-changing advice, but the longer you’re an investor, the more true this becomes.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »