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The best Warren Buffett, Jack Bogle and Terry Smith advice

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.

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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.