Page 3 - FWP Wealth Adviser Newsletter - February 2025

ISSUE 105
FEBRUARY 2025

underlying value of businesses. This patience allows him 1. Avoid businesses with poor economics, regardless of
to weather market storms and capitalise on opportunities price.
when they arise. 2. Be cautious of capital-intensive industries with unpre-
Australian investors can adopt this mindset by devel- dictable returns.
oping a well-thought-out investment plan and sticking to 3. When you find a great business at a fair price, consider
it, even during periods of market turbulence. This might holding for the very long term.
involve regular contributions to a diversified portfolio, 4. As Buffett puts it, “If you find yourself in a leaky boat,
regardless of market conditions, a strategy known as focus on changing boats, not patching holes”.
dollar-cost averaging. These lessons reinforce the importance of thorough
analysis, patience, and the willingness to admit and learn
Learning from Mistakes: 25 Errors That Shaped from mistakes.
Buffett’s Strategy
Buffett’s success is not just a result of his triumphs but Applying Buffett’s Principles in Australia: ETFs,
also of the lessons learned from his mistakes. By examining Resilience, and Pragmatism
some of Buffett’s most significant errors, investors can gain For Australian investors, applying Buffett’s principles
valuable insights into risk management doesn’t necessarily mean trying to
and investment decision-making. replicate his specific stock picks. Instead,
For Australian it involves adopting his overall approach
The Berkshire Hathaway Textile Mill investors, applying to investing, with a focus on simplicity,
Perhaps Buffett’s most famous mistake quality, and long-term thinking.
was his initial investment in Berkshire Buffett’s principles
Hathaway, then a struggling textile doesn’t necessarily Embracing Low-Cost ETFs
company. Buffett has stated, “Buying mean trying to Buffett has long advocated for low-
Berkshire Hathaway was the dumbest cost index funds for most investors.
stock I ever purchased”. This experience replicate his specific He famously stated, “The goal of the
taught him the importance of investing stock picks. Instead, non-professional should be a low-cost
in businesses with strong economic S&P 500 index fund”. While this advice
fundamentals rather than trying to revive it involves adopting was originally aimed at U.S. investors, the
declining industries. his overall approach principle applies equally to Australians.
to investing, with a ETFs or broad market index funds
Airline Investments tracking the ASX 200 offer low-cost, di-
Buffett’s investments in airline focus on simplicity, versified exposure to quality companies.
stocks, including a significant stake in quality, and long- These instruments allow investors to
USAir in 1989, proved to be another benefit from market growth without the
costly mistake. The volatile nature of the term thinking. need for individual stock selection.
airline industry and its capital-intensive
structure made it challenging to gener- Focus on Quality and Value
ate consistent profits. Buffett learned the importance of Buffett’s investment strategy has always centred on
avoiding industries with unpredictable economics and high identifying high-quality businesses trading at reasonable
capital requirements. valuations. For Australian investors, this might involve
looking for companies with strong competitive positions,
Selling Disney Too Early consistent cash flows, and prudent management.
In 1966, Buffett acquired a significant stake in Disney for ETFs that focus on quality factors can be an effective
$4 million. He sold the entire position about a year later for a way to implement this strategy. These funds typically select
50% profit. While this might seem like a success, the long-term companies based on metrics such as return on equity, debt
growth of Disney’s value means Buffett missed out on billions levels, and earnings stability.
in potential gains. This mistake underscored the importance of
holding onto great businesses for the long term. Avoiding Speculative Trends
Buffett’s approach has consistently avoided speculative
Key Lessons trends and “story stocks.” His “avoidance of ‘story stocks’
From these and other mistakes, several key lessons is a warning for meme-stock speculators”. This principle is
emerge: particularly relevant in today’s market, where social media

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