If you are still looking at your holiday shopping list in disbelief and thinking that another scented candle or a generic gift card would do the trick, Warren Buffett has a "hack" that outshines every other gift.
The "Oracle of Omaha" is one of the most amazing value hunters and also is widely known for his pretty thrifty ways. However, it is not widely known that his most iconic move was not on the trading floor of the New York Stock Exchange but rather around the family Christmas tree. Buffett didn't just change the way he celebrated the holidays; he completely changed the financial evolution of his family by moving from cash to equity.
The shift: From envelopes to equity
Buffett, for a long time went through the same holiday ritual that most people do, but which lacks imagination: giving every member of the family $10,000 in cash. Now, most people would be outrageously happy to find ten grand in their stocking, but Buffett understood that cash is a very transient thing. It is usually spent on holidays, new cars, or other short-lived luxuries.
In that one particular year, he went ahead and completely reinvented the game. Instead of giving $10,000 in cash he would wrap up $10,000 worth of stocks of a company that he had just bought and give it as a present. Along with the gift, a simple note would be included: the shares are your to hold or you may sell them and get the money.
The lesson in compound interest
One can hardly imagine a better illustration of behavioral economics than Buffett's plan. By offering shares, he did not give the recipients but the owners' mentality, indeed.
There is a famous story about the time he gave his daughter-in-law, Mary Buffett, stocks in Coca-Cola for the amount of $10, 000. Instead of selling them for a quick buck, she figured out that if the world's most brilliant investor thought these stocks were the best kind of gift, then she better hold on to her shares. As the stock price kept going up and dividends were reinvested, that "simple" Christmas present turned into a nice fortune.
Why this "hack" is suitable for anyone
Adopting the Buffett Christmas tactic does not require you to be a billionaire. The brilliance of stock gifts lies in these three points:
Financial Literacy: The recipient has to figure out how the market works and how to track an investment.
Tax Efficiency: In many places, the tax system favors the giving of an already appreciating stock over the sale of stock and gift of cash.
A Lasting Legacy: Unlike a sweater that wears out, a share of a great company can theoretically provide value for a lifetime.
A new holiday tradition
Warren Buffett later moved on to even bigger charitable giving goals, but his Christmas "pivot" is still a very powerful lesson for families all around the globe. It implies that the best present is not something you can use today, but something that grows with you.
Buffett, by opting for assets rather than cash made sure his family didn't only have a merry Christmas but also a safe and secure future. So, this year, rather than reaching for the cash envelope, think of what Warren might have done.
