The Canadian Press - ONLINE EDITION

Billionaire Warren Buffett offers refresher course on his value investing approach in letter

  • Print

OMAHA, Neb. - Warren Buffett is offering a refresher course on his approach to investing in his annual letter to Berkshire Hathaway Inc. shareholders.

Buffett's full letter won't be released until Saturday, but Fortune magazine published an excerpt of it online (http://bit.ly/1hKsIk1 ) on Monday. Fortune writer Carol Loomis, who is a longtime friend of Buffett's, edits his annual letter.

The billionaire uses two personal real estate investments he made to demonstrate some of his key principles: focus on what an investment will produce, not its price; stick to what you know; and don't try to predict what the economy or stock market will do.

"You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognize your limitations and follow a course certain to work reasonably well," Buffett wrote. "Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick 'no.'"

The examples Buffett cited were his 1986 purchase of a 400-acre Nebraska farm and his 1993 purchase of a retail property near New York University's campus. Both purchases were made after prices collapsed.

Buffett said he didn't know much about farming or retail, but he knew enough to determine the farm near Tekamah would remain productive and the retail centre would keep appealing to NYU students. He also said the largest tenant in the New York property had an underpriced lease that would expire nine years after the deal.

Buffett said he could tell both investments had little downside even though he's only visited the farm twice and never seen the New York retail property.

Over the years, Buffett hasn't sought out any price quotes on his farm or retail property, and he isn't inclined to sell. And Berkshire Hathaway's chairman and CEO said stock investors shouldn't be eager to sell just because the market offers them price quotes all the time.

Buffett compared the stock market to having a moody farm investor shout out prices of Buffett's farm every day.

"If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm," Buffett said. "If the number he yelled was absurdly high, I could either sell to him or just go on farming."

Andy Kilpatrick, who wrote "Of Permanent Value: The Story of Warren Buffett," said the essay offers a good summary of the techniques Buffett used to become one of the world's richest men.

"It was a great treatise on value investing," Kilpatrick said.

Buffett said he learned the keys to investing by reading former Columbia University professor Ben Graham's book "The Intelligent Investor." Buffett went on to study under Graham and later work with him.

But for investors who don't have the skills or time to estimate the value of investing, Buffett repeated his standard advice: make regular purchases of a low-cost stock index fund.

"So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm," he said.

Buffett leads the Omaha, Neb., based Berkshire Hathaway conglomerate that owns more than 80 subsidiaries in a variety of industries, including insurance, utilities, railroads, retail and manufacturing. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

Buffett's shareholder letter, which is part of Berkshire's annual report, is always one of the most-quoted and best-read business documents.

___

Follow Josh Funk online at www.twitter.com/funkwrite

___

Online:

Berkshire Hathaway Inc.: www.berkshirehathaway.com

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Jim Flaherty remembered at visitation as irreplaceable

View more like this

Photo Store Gallery

  • JOE.BRYKSA@FREEPRESS.MB.CA Local-(Standup photo)- Humming Around- A female ruby -throated hummingbird fly's through the bee bomb  flowers Friday at the Assiniboine Park English Garden- Nectar from flowers are their main source of food. Hummingbirds wings can beat as fast as 75x times second. Better get a glimpse of them soon the birds fly far south for the winter - from Mexico to South America- JOE BRYKSA/WINNIPEG FREE PRESS- Sept 10, 2009
  • PHIL.HOSSACK@FREEPRESS.MB.CA 100527-Winnipeg Free Press THe Provencher Foot Bridge is lit up

View More Gallery Photos

Poll

What are you most looking forward to this Easter weekend?

View Results

View Related Story

Ads by Google