Investing the Warren Buffet Way

Warren Buffet, the legendary Oracle of Omaha, is the chairman and largest shareholder of Berkshire Hathaway. He is the second wealthiest person in the United States, and the fourth wealthiest person in the world, with a net worth of over $70 billion.

Buffet has made his fortune through decades of research and acquisition of companies that he considers to be well-priced given the quality of their management and the fundamentals of their underlying finances (value investing). Buffet is a classic long-term investor – his preferred holding period for an investment is ‘forever’.

That being said, Buffet himself realizes and understands that investing is a ‘zero-sum’ game. In order for their to be winners, there have to be losers. Not all investors and certainly not all financial advisors can sustain above-average returns relative to the markets. It’s a mathematical impossibility!

So what does Warren recommend for the vast majority of investors?

Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

That’s right. Low-cost index funds.

Remember, this is from perhaps the most successful and legendary stock-market investor of all time. In fact, Buffett said in one of his famous letters to shareholders that “when trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.”

When Buffet dies and is no longer around to manage his massive holdings, what has he planned to do with his assets to ensure his estate remains on solid ground and that his considerable philanthropic interests continue long into the future?

My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.

So there you go….it doesn’t get much more simple than that, does it?



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