We recently read an article from Morningstar that highlighted 12 Lessons on Money and More from Warren Buffett and Charlie Munger. We thought it was a great summary of the wisdom offered by Warren and Charlie over the years and was worth passing along. Here is the first lesson discussed, to read the rest of the unedited article click on the link below:
1) Be Skeptical of Exotic Financial Instruments
Buffett and Munger have been consistent critics of derivatives, catastrophe bonds, crypto, and other types of financial “innovation.” The way they run Berkshire Hathaway reflects this prudence. The company operates with very little debt and a large cushion of cash and investments, an approach that has influenced the way Morningstar manages its own balance sheet. The skepticism of Wall Street's creativity in new-product development has influenced our analysts over the years when faced with the latest and greatest product offering from asset managers or investment banks.
One of my favorite Buffett quotes is, “If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.” Unfortunately, the financial industry is chock-full of players eager to induce you to play the game on their terms, always with a hefty entry fee attached. To this day, I'll admit I've never bought or sold an option, shorted a stock, bought a triple-inverse-short ETF or 130/30 fund, dabbled in structured notes, or invested in a variable annuity. Simplicity is good. It certainly lowers costs.
To read the full article, click here.
