Should You Start Buying Stocks in 2014? Here's What Warren Buffett Thinks

"You see, Barack, if you have the time, it's worth it!"

Make no mistake, buying individual stocks is hard work. Compared to the plain-vanilla option of buying mutual funds or an index fund, owning and managing a portfolio of your own stock picks simply takes more time.

How much more time? Warren Buffett suggests it takes at least 6-8 hours per week. At one of his annual shareholder meetings for Berkshire Hathaway investors, Buffett said the following:

If you like spending 6-8 hours per week working on investments, do it. If you don't, then dollar-cost average into index funds.

Why 6-8 hours per week?
It's interesting that Buffett would set the benchmark at 6-8 hours per week to manage a portfolio of investments. The truth is, you could spend 6-8 hours a week just reading The Wall Street Journal from A1 to D22 every morning.

But here's the rub: Spending time following general investment ideas won't take you very far. That is to say, you're not going to find great investment ideas by reading the news. (Any successful investor is reading the news, anyway.) You find them by reading the source documents -- the annual reports, conference calls, and industry papers.

And, if you spend 6-8 hours a week reading the above source documents, you're likely to run into great reasons to own any given investment.

Is 6-8 hours a week worth it?
If we assume it does take 6-8 hours a week to find new, great investments, then we also have to ask ourselves if such an investment is truly worth it.

The Motley Fool is stacked with investing nerds. We're all here because we love investing. I can't even tell a difference between work I do for the Fool and what I do for my "hobby" because investing is part of both my work and play.

If you fall into that camp -- the camp that truly enjoys the "process and the proceeds" of investing, then buying individual stocks is absolutely something you should do. If it's painful to read through an annual report, or even think about a company and how it makes money, beats it competitors, and delivers returns to investors, you should probably stick to the index.

How I'd spend 6-8 hours per week
If I were to limit myself to just 8 hours per week, I'd have to make some serious changes to how I investigate stocks. But I do think it's possible to be an informed investor while limiting yourself to just eight hours per week.

First, I'd spend a solid four hours per week reading through annual reports and conference calls. This is single-handedly the best way to understand individual companies and industries. Once accustomed to the formatting of an annual report, navigating them takes much less time than one would think.

Second, I'd dedicate another two hours per week to careful study of an industry as a whole. As I write primarily about financial stocks and real estate, I'd dedicate two hours to a book that walks me through the industry. The first week, I might start with an overview of the history of banking. The next week, perhaps a book on the 1980s savings and loan crisis to get a feel of what bad banking is. You get the idea. Eventually, this time can be reallocated to new industries, or to the source documents.

Third, for someone who wants to maximize their time, another hour should be spent reading analyst reports. Here you'll learn the metrics that are important to an industry you think you'll want to invest in in the future. For banks, a big metric is net interest margin. For retailers, it's sales per square foot. For insurance, it's the combined ratio. You can learn the numbers that matter, quite quickly, by reading the work of people who have to make a business make sense in fewer than 10 pages.

Finally, the last hour would be dedicated to valuation and portfolio diversification. Being a long-term Warren Buffett investor -- a Foolish investor -- isn't about building the perfect spreadsheet. It's about finding the very best businesses and holding them for as long as you can. I'm a big believer in the idea that spending more time on valuation will be more favorable to a bad business than a great business. Spend less time, and you'll only hold great businesses in your portfolio -- the obvious buy and hold stocks.

The Foolish bottom line
Managing your own portfolio is hard work, but with a concentrated effort of 6-8 hours per week, you can find great stocks to own for the long haul. Luckily, knowledge acquired in investing spills over in every facet of life. Understanding finance may put you in a better spot for a promotion at work. Knowing your way around a balance sheet may help you better understand your own net worth. If investing is your passion, and you have 6-8 hours to dedicate to the cause, you should absolutely do so.

More great insights from Warren Buffett
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


Read/Post Comments (19) | Recommend This Article (80)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 05, 2014, at 1:44 PM, jammerk65 wrote:

    bring the lambs to the slaughter !,,, I'm buying gold till the defecit is straightend out !!!

  • Report this Comment On January 05, 2014, at 2:02 PM, shineridge wrote:

    To HECK with the MANIPULATED stock market. BUY GOLD !!!!!! As for Warren Buffet ? He's nothing but a FRAUD STREET gambler who never does a LICK of real, HONEST work for his billions !!!!!

  • Report this Comment On January 05, 2014, at 6:41 PM, TMFKopp wrote:

    Gold: The Ultimate Winning Investment Strategy

    Unless, of course, your goal is long-term wealth creation.

    Matt

  • Report this Comment On January 05, 2014, at 9:43 PM, wryscott wrote:

    How much did you earn on your gold in 2013?

  • Report this Comment On January 06, 2014, at 10:06 AM, alex1010 wrote:

    6-8 hrs/wk is enough if you're a pro like Mr. Buffett for an amateur like you & me it might take forever to understand the materials for most of the time the materials are outdated, useless, and totally nonsense. Unlike us, Mr. Buffett he has a whole team of geek and nerds who are working fulltime around the clock and on the daily basis to do research and monitor everything that is going-on in the Wall Street and industries before he could reach the final decision of buying/selling. Good luck folks, stay alert take care of your finance while it's taking care of you & your family.

  • Report this Comment On January 06, 2014, at 10:13 AM, Mathman6577 wrote:

    2-3 hrs/week is sufficient for a long-term investor that doesn't trade very often.

  • Report this Comment On January 06, 2014, at 10:21 AM, ScoopHoop wrote:

    I think amateurs who want to be in the equity markets should own some S&P 500. It is the benchmark by which all portfolio managers, including Buffett, are measured. A friend of mine retired on the S&P 500 with half million. His play money was a brokerage account that went up and down. I have always owned the index, but still own quite a few stocks, too. I've been an investor for 20 years. I have spent an average of 10 hours a week on stocks, often more than that. My returns last year were 32%, only slightly better than the S&P 500's 29% return. But some years, I did not beat the S&P500 and was glad I owned the index.

  • Report this Comment On January 06, 2014, at 5:16 PM, lwe1 wrote:

    Silver has a wider margin to move and demand is still very high--- It was at $50 once upon a time.

  • Report this Comment On January 06, 2014, at 5:59 PM, mrspeabody wrote:

    I really don't want to read reports. That's why I subscribe to a couple of the Fools premium services. I figure they can do the tough reading for me. So far it's served us well. When we were just about ready to retire we went to a Garrett financial advisor. His comment about our portfolio was, "How did you pick these stocks? This is one of the best portfolios I've ever seen." And I love reading the Fool articles, short and sweet. Do I really need to do my own research if I'm paying you to do it for me?

  • Report this Comment On January 06, 2014, at 6:07 PM, RLLH wrote:

    I spend about 6 -8 hours per day reading about stocks and still feel like I'm skimming the surface. Investing is a full time job and should be, considering what is at stake. Of course being retired helps in finding the time. And the pay is definitely better than it was when I was working.

  • Report this Comment On January 06, 2014, at 6:28 PM, mclaugph wrote:

    The title and the article don't match up...and using Warren Buffett as a teaser and quoting from an old shareholder meeting that doesn't say anything specific about 2014 is misleading at best and dodgy/rotten "journalism" at worst.

  • Report this Comment On January 06, 2014, at 9:10 PM, Saintmark01 wrote:

    For several years I did a lot of reading and had little to show for it. Buffet, Munger and others can read between the lines and find nuggets of wisdom that drive their decisions. I look at the same info but can't connect the dots as they do.

    Several years ago I researched several money managers who consistently produce good results. I began reading about the funds in their portfolios and started picking stocks from among their selections. Ken Heebner, Mason Hawkins, Bill Nygren, and even some of the SA writers, are terrific.

    This path has been highly productive. My portfolio has tripled in five years with a lot less work on my part.

  • Report this Comment On January 06, 2014, at 9:24 PM, stevec5792 wrote:

    Silver @ $50? Was that when the Hunt brothers were trying to buy up all the Silver in the world in... wait for it... wait for it...1979?

  • Report this Comment On January 06, 2014, at 9:29 PM, dbtheonly wrote:

    TMF Kopp,

    Gold gets plenty of wealth created. Just look at the number of "investment" newsletters predicting currency collapse, runaway deficits, hyper inflation, & such. They've been doing so every time there's a Democratic President since 1978, that I know of.

  • Report this Comment On January 07, 2014, at 2:49 AM, Hfish1212 wrote:

    MF has been pushing linkedin stock but I say its already fairly valued. Yelp is still under $5 billion, far below the $20 billion i believe it is worth.

  • Report this Comment On January 07, 2014, at 11:26 AM, Systag wrote:

    If spend 8 hours a week reading, watching TV, going to movies, walking my dogs. I spend 10 minutes a day reading Motley Fool. Isn't that why I subscribe to your services?

  • Report this Comment On January 07, 2014, at 11:17 PM, dbtheonly wrote:

    Hfish

    That is why God made horse races.

  • Report this Comment On January 10, 2014, at 1:53 PM, zandude wrote:

    The title of this article has nothing to do with the content. what gives?

  • Report this Comment On January 10, 2014, at 5:20 PM, PhilipCohen wrote:

    "... you're not going to find great investment ideas by reading the news. ... You find them by reading the source documents -- the annual reports, conference calls, and industry papers."

    Is that why eBay's stock is doing so abysmally relative to Amazon's stock: the smart money on Wall Street has been looking a little deeper than the nonsense that habitually spews out of the eBay Dept of Spin into the dumb media ...

    Keep up the good work Johnny Ho; you'll make it to the sewage farm yet ... bit(DOT)ly/11F2eas

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