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With enough inside information and a million dollars, you can go broke in a year.
Warren Buffett

Since today’s Q&A is on the theme of good advice about money (something to which I ought to pay close attention), it’s surely serendipity that the first thing that caught my eye on the Yahoo! Finance page this morning was a list of money saving tips. Tips from none other than the Sage of Omaha, Warren Buffett.

I’m a huge fan of Buffett and his long-time sidekick, Charlie Munger, not simply because of their spectacular successes in business, but also because nothing beats their wry sense of humour and self-deprecation taken to an art form. For instance, Buffett once responded to a question at Berkshire Hathaway’s AGM regarding his and Munger’s respective ages by observing:

At the average age of 80, we’re aging at the average rate of only 1 1/4% per year. That’s a lot better than younger people.

But back to those tips… Highlights after the jump.

Think Like a Business Owner

In other words, the investments you make in the markets are ultimately investments in fundamentals: businesses that will succeed or fail on the strength of their management and product. The video game approach to stock trading, in which equities are simply stock tickers is sure to leave you several steps behind.

Let the Market Serve You, Not Instruct You

This one is interesting. Essentially it means that there is lots of easy to digest and over-simplified information available to “help” you interpret the market. At best this information is of no value; at worst it is actively damaging, since it gives investors the impression that they are informed when in reality they know nothing of the fundamental drivers of value in their investment choices.

Always Have a Margin of Safety

In other words, investing with no room for error in your assumptions is a doomed strategy. Again, if the fundamentals are sound, then other factors such as changing market conditions will not severely compromise your portfolio.

Don’t Do Anything Regardless of Price

In other words, an investment’s value is directly related to its price. A fundamentally great company can be grossly overpriced.

Professionals Should Concentrate Their Bets, Amateurs Diversify

We’ve been tricked by the apparent wealth of information available to retail investors to think of ourselves as professionals when it comes to picking stock. As noted above, the information we have is typically poor quality by virtue of being obvious and easy to accumulate. Recognizing that we can’t really be experts means the only logical thing to do is minimize risk through diversification.

Now if only I could do a better job of admitting I’m an amateur and following this advice myself.