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Investing: What Can Investors Learn from Warren Buffett’s 2016 Letter to Shareholders?

I heard a great conversation today with Roger Lowenstein, former WSJ columnist and Author of Buffett: The Making of An American Capitalist, America’s Bank and When Genius Failed, on the Masters in Business podcast. When asked about how he learned about investing, he mentioned how much he had learned from reading Warren Buffett’s Annual Letter to Shareholders. I thought I would dissect his 2016 Letter and share his often folksy advice in an abbreviated format (the letter is 29 pages long).

I thought you might find these insights useful:

  • Two things to keep in mind during market declines which captures the psychology of investing (not his use of the phrase “sit for an extended period”):

Spreadsheet Math: Two Investments Walk Into A Classroom…

Ok, not the best title but let’s run with it. Let’s start with a question:

You have a choice between two investments of $100,000:

  • Investment #1: Earns a consistent 8% return every year (put aside the fact that an investment like this doesn’t exist at the current time; it’s been a while since you could buy a 30 year Treasury Bond with that kind of return).
  • Investment #2: Has an average return of 8% per year but has “lumpier returns” aka it has more volatile returns but the returns each year are in the top 10% of fund returns. Some years it is up, some years it is down, but overall it averages the same 8% return as Investment #1.

Which investment has a higher balance at the end of the 20 year period?

Web Quest: How Do I Buy A Stock (Or Better Yet, An Index Fund)?

A teacher at our recent FinCamp reminded me that we should not forget about the importance of the mechanics of personal finance transactions. What good is teaching students about the importance of investing if they don’t know how to go about setting up an account to buy/sell investments. While we have a activities on how to select a credit card and a bank account, we don’t answer the basic question that many young investors have which is “How do I buy a stock?”

Rather than answer this question for them, have students do their own online research to discover:

Videos: What’s New In Investing?

  • Warren Buffett’s Million Dollar Bet: Who’s Winning (from MarketWatch)?
    • What’s the bet?
    • What’s a hedge fund? What’s an index fund?
    • Who’s winning? Why?
    • Why should this matter to you as a regular investor? What’s the lesson?
  • Fee war breaks out on commissions to trade stocks (from CNBC):
    • How much are brokerage fees going down? Is this good news for investors?
    • Why do you think the online brokerage stocks are falling with this news?
    • Do you think investors will change brokers based on these cost reductions?

Interactive: What’s the S&P500?

Here’s a great interactive for students who struggle with the concept of the S&P500 or of an index or mutual fund. For a math teacher, this interactive would be percentage heaven! I blogged about this in October 2014 when most of you were NOT reading this blog so definitely worthy of a repeat post. I have added better questions for your students to answer too. From finviz.com comes this great visualization of the S&P500:

Here’s a description of what you are looking at:

Finance in My Life: What If That Savings Bond Was An Index Fund?

I was cleaning out an old drawer and thought this might be be a fun exercise for those who want to bring some math into their classroom and also compare the returns on stocks and bonds:

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I received this savings bond in April, 1980 for winning an essay contest put on by the local Elks Club. The topic: Patriotism in America. This was the time of the Iranian Hostage crisis and I remember writing about how local communities were supporting the hostages and their families in so many ways. This discovery had me wondering about  a few things:

By |March 5th, 2017|Current Events, Index Funds, Investing, Math, Research, Stocks|

Chart: How Have World Stock Markets Changed Over The Past 100 Years?

Interesting graphic from a Credit Suisse report comparing the relative size of stock markets in 1899 vs. 2016 (great for a history course):

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Questions to ask:

Question: How Much Should You Save For Retirement?

I heard this on Marketplace.org last night and thought it was worth sharing. It seems the old “rule of thumb” of  saving 10% for retirement needs to be updated:

By |February 7th, 2017|Current Events, Index Funds, Investing, Question of the Day, Research, Stocks|