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The High-End, Home-Spun Wisdom of Warren Buffett


When people are asked to name the most successful investor they know, Warren Buffett often tops the list. It’s an admiration well-deserved. However, in our estimation, any long-term investment success Buffett has enjoyed likely has more to do with his patient, disciplined approach to investing than any magical forecasting powers.


That’s why you are well-advised to focus more on the core principles found in Buffett’s investment outlook than on his particular picks. Buffett says it best himself in some of our favorite excerpts from his current shareholder’s letter:


“When promised quick profits, respond with a quick ‘no.’”


“I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so.”


“The goal of the non-professional should not be to pick winners … The ‘know-nothing’ investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results.”


This is not just our opinion. Buffett’s strategies are closely watched by many here in the U.S. as well as on the other side of the globe, where Jim Parker of DFA Australia, Ltd. commented on Buffett’s recently released annual letter to Berkshire Hathaway shareholders. In his March 2014 article, “Not Rocket Science,” Parker says:


What does he [Buffett] think about the Federal Reserve taper? What could be the implications for emerging markets of a Russian military advance into Ukraine? What does an economic slowdown in China mean for developed markets? Buffett has a neat way of parrying these questions from journalists and analysts. Instead of offering instant opinions about the crisis of the day, he recounts in his most recent annual letter a folksy story about a farm he has owned for nearly 30 years.


Has he laid awake at night worrying about fluctuations in the farm’s market price? No, says Buffett, he has focused on its long-term value. And he counsels investors to take the same sanguine, relaxed approach to liquid investments such as shares as they do to the value of their family home.


“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations,” Buffett said. “For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”


This makes good sense to us, and probably to you too. It seems Buffett has hit another home run with this year’s shareholder’s letter.


And yet, as author Larry Swedroe observes in his book, “Think, Act and Invest Like Warren Buffett,” the advice may be easier for people to admire than to achieve. Swedroe notes: “While Buffett is widely admired, the majority of investors not only fail to consider his advice but also tend to do exactly the opposite of what he recommends.”


In short, next time you’re tempted to react to a current event by buying or selling in anticipation of a fast profit, remember one other bit of recent advice from the Oracle of Omaha: “Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard.”

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