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Personal Finance

In this guide, we explore the investment principles of Warren Buffett, the world’s richest man with an estimated worth of $62 billion. We delve into the psychology of investing, discussing the importance of managing expectations and the relationship between risk and return. Drawing on historical events like the Great Depression and the Tech Bubble, we illustrate Buffett’s famous advice: “Be greedy when others are fearful, and fearful when others are greedy.” Learn about stock market returns, the significance of long-term thinking, and strategies for minimizing risk through diversification.

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Personal Finance

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Presentation Transcript

  1. Personal Finance Investing: Part I - Expectations

  2. Meet Warren Buffett… • Fortune’s “World’s Richest Man” • Estimated worth = $62 BILLION • How did he make his money?

  3. Expectations

  4. Expectations • Happiness = Reality / Expectations • Happiness = 100 / 10 • (10) • Happiness = 10 / 100 • (.10)

  5. Expectations – Two investors The Great Depression “Be Greedy When Others are Fearful” – Warren Buffet • 1929 Market Crash • Fearful investors stay away • Huge potential returns, but few took advantage Dow Jones Average 1930 - 2005

  6. Expectations – Two investors The Tech Bubble of Late 1990’s Stocks doubling Internet Millionaires Bubble bursts 70% of NASDAQ value wiped out “Be Fearful When Others are Greedy” – Warren Buffet

  7. Expect: Risk & Return Trade-Off The In-Home Vault The Powerball Ticket

  8. Expect: Risk & Return Trade-Off • Your target – something in middle of a safe in your house and a Powerball ticket in your pocket! • Between 1926 & 1997 • Inflation = 3.1% • Short term government bonds = 3.8% • Stock market = 10.6% return

  9. Expect: Risk

  10. Expect: To own pieces of a company • Share of Abercrombie = ownership in company • Voting rights (Common Stock only) • “Public” Company = shares available on market • Most major companies are publicly traded

  11. Expect: Growth • Your investment in the overall stock market will increase in value • Over the long term • Average return between 9 & 11% • Expect Compounding 

  12. Got Growth??

  13. Got Growth?

  14. Got Growth??

  15. Expect: Waiting • It takes time to see significant results • Long-term thinking is key • Long-term plays = investing • Short-term plays = gambling/speculating

  16. Expect: Volatility • How much does the price go up or down from week to week? • Measured by Beta • > 1, riskier than market average • < 1, less risky than market average • = 1, same risk as market average • Focus on how a business is doing…not their day-to-day stock price

  17. Expect: Volatility

  18. Expect: To lose some money • There are NO guarantees in the stock market…with high return potential comes risk. • The more you know, the fewer losses you will end up having • Minimize risk through diversification

  19. Diversification

  20. Expect: Conflicting Advice

  21. Expect: Work (and Fun) • Investing can be simple • Earning average results is easy • Investing can be complex • But the better than average return you earn will be worth it • Investing can be fun • Think of your hobbies… • Getting paid to do homework

  22. Activity: Looking up stocks • Log onto finance.yahoo.com • Search for a company and find their stock quote • Click on their “Max” Chart which shows the stock’s entire price history • We will share the findings in class

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