Larry Swedroe - Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals

Copyright 2013 by Larry E. Swedroe. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

ISBN: 978-0-07-180996-2
MHID: 0-07-180996-1

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This book is dedicated to four of the most important
people in my life, my grandchildrenJonathan,
Sophie, and Gracie Rosen, and Ruby Jane Morris

Introduction:
Why I Wrote This Book

1. Want to Invest More Like Warren Buffett?
Start Taking His Advice

2. Want to Invest More Like Warren Buffett?
Start Thinking Like He Does

4. The Need to Plan:
It Is Not Only About Investments

5. How Much Risk Should You Take?
The Asset Allocation Decision

Each of my 12 books is about what I call the science of investing, the evidence demonstrating the prudent investment strategy. My Only Guides Youll Ever Need series deals with stocks, bonds, alternative investments, and the designing of the right financial plan. My Wise Investing series is a collection of stories and analogies designed to demonstrate that the winning investment strategy is a simple, elegant, and logical one. And because it is so simple, requiring little effort (though lots of discipline), it is also the winning strategy in life.

What I have learned from my experiences is that not many people will devote a lot of time to learn about investing despite its importance. It is difficult to get them to read a 300-page book that cites dozens of studies. That is why I have written this book.

Think, Act, and Invest Like Warren Buffett is designed to explain how adopting some basic principles can help you outperform the vast majority of investors and increase the chances of achieving your financial and life goals.

Over the years, I have talked to thousands of people about investing. I have learned there are some individuals who can be successful investors on their own. If you believe you fall into that category, provides five important questions for you to answer before you decide to go it alone.

Many others have found great benefit in working with an advisory firm. For those who want to consider working with an advisor, also provides information on how to perform thorough due diligence as you search for a fiduciary advisor who can truly add value, such as making sure your investment plan is part of an overall financial plan that addresses estate, tax, and insurance issues.

If investors were asked, Who do you think is the greatest investor of our generation?, an overwhelming majority would answer, Warren Buffett. If they were then asked, Should you follow the advice of the person you consider the greatest investor?, you would think that they would say, Yes! The sad truth is that, while Buffett is widely admired, the majority of investors not only fail to consider his advice but also tend to do exactly the opposite of what he recommends.

To demonstrate the truth of this statement, we will review Buffetts investment guidance and see if people have actually followed it. We will review his advice on three issues:

1. Whether you should invest in actively managed or passively managed mutual funds (such as index funds).

2. Whether you should listen to market forecasts.

3. Whether you should try to time the market.

Actively managed funds attempt to uncover and exploit securities the market has mispriced, buying those they believe are undervalued and avoiding those they believe are overvalued. Actively managed funds may also attempt to time investment decisions to be more heavily invested when the market is rising and less so when the market is falling. In contrast, passively managed funds are basically buy-and-hold vehicles that eschew stock picking and market timing, believing the costs outweigh the benefits. Active investors also look to experts for an investing edge, while passive investors ignore such advice.