STEWARDSHIP 28 JULY 2025 www.goodnewsfl.org Good News • South Florida Edition “There seems to be some perverse human characteristic that likes to make easy things difficult,” a saying we’ve grown quite fond of repeating. It usually brings a chuckle. On occasion a groan. The statement is attributed to Warren Buffett, considered by many the most successful investor of all time, with an unparalleled 19.9% compound annual gain over 60 years. Mr. Buffett’s declaration undeniably applies to investing. Smart money moves aren’t more complicated than you think. They’re actually simpler. Cut through the jargon, pontificating and technical stuff and everything you really need to know about investing can often be boiled down into very straight forward concepts. Key among them is compounding, another of our core investment principles. Time (an investor’s friend) providing the distinct advantage. In fact, Mr. Buffett considers compounding the “eighth wonder of the world,” and we have long considered it to be his central investment strategy. Money plus yield plus time is an often-forgotten financial concept. Simple, yet remarkably effective. As mentioned in the past, every investment should be looked at through the lens of a “risk-free” U.S. Treasury security (TreasuryDirect.gov). Moreover, the risk-free interest rate is the most influential basis for valuing all investments. If we can earn interest risk-free, then any investment we make beyond a Treasury security should adequately compensate us for the risk being undertaken. Wise and deliberate investors We like to use the phrase of becoming wise and deliberate investors. Let’s first describe what that is not, someone who has money in the market. Instead, a wise and deliberate investor is a person, through detailed analysis, that seeks safety of principal along with a reliable and satisfactory return on an investment. The former is a speculator. It is important to understand the difference. An investor realizes that stock shares are an ownership interest in an actual business. And that a bond is a distinct claim against an actual business. Investors take the time to fully understand the capital structure, and how it helps determine a company’s financial health and risk profile, as well as one’s investment choices. Wise and deliberate investors possess several common characteristics: • A highly disciplined consistency in their investment approach; • An unwavering commitment to research, and an uncanny ability to think more than most about the future possibilities for their investments; • An uncompromising approach to investing; minimizing emotion (and putting political views aside); • A deeply engrained thought process to think like an owner and/or a debtor at all times. When we walk into a Walmart or McDonalds or pull into an ExxonMobil service station with our grandkids we often say to them, “look around; we own the company.” As shareholders, we actually do! It never fails to get a smile, but we’re also teaching them an important lesson. A lesson us adults likely need to learn too. Investor behavior The purpose of investing is to generate profits. This is done through interest, dividends and capital gains. Thus, when investing, we are first and foremost embarking on a business venture, which must be run in accordance with strict and defined principles. Over time, how an investor behaves becomes an overwhelming factor in their success; often, even more so than how their investments behave. An investor must know what they know, and also what they don’t. They should have a well-balanced confidence, along with a genuine humbleness. Importantly, an investor should have a written, clear and easy to understand investment plan, and then stick to it. An investor must recognize that a particular stock or bond’s value has nothing to do with its presently quoted price. Rather, its value is a function of its present price. The higher the present price, the lower the potential future return. Likewise, a bond’s value is a function of its timely repayment. The bond’s yield, when purchased at a price of intrinsic value, should have a direct correlation to the entity’s ability to meet its timely repayment objective. Lastly, an investor must consider that the risk associated with being utterly wrong can never be eliminated. However, the result of it can be minimized by never overpaying, being thoughtfully diversified, understanding liquidity and fully scrutinizing all of the investment’s details. If it’s complex, it’s likely too expensive. The Hard Way is a classic song by a longtime favorite Christian music group, DC Talk. It goes like this, “Some people gotta learn the hard way. I guess I’m the kind of guy that has to find out for myself. I had to learn the hard way, Father. I’m on my knees and I’m cryin’ for help.” The concepts shared above largely derive from persons such as Warren Buffett, Benjamin Graham and others that are far wiser and more experienced than us. Always strive to identify and engage with investing wisdom. Avoid the hard way. Like compounding, simple, not complicated. Patrick J. Kelly has spent more than four decades at the most senior levels in the financial services industry. He has held executive leadership positions in banking and securities firms, served numerous profit and nonprofit boards, possesses advanced education in economics, accounting and finance, and has been a featured guest in numerous financial media forums. At present, he endeavors to impart his experience and knowledge to younger generations whenever possible while also offering consultation on securities and banking industry practices for litigation-related expert witness testimony. The Hard Way - Patrick J. Kelly - President, Kelly Advisory Group Warren Buffett is a billionaire investor and philanthropist who serves as the CEO and chairman of Berkshire Hathaway.
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