Warren Buffet: Wisdom from the Worlds Richest Investor

In light of the dominant mindset overshadowing the market these days, a breath of fresh air might be welcome. This month, we're devoting this space to wisdom from Warren Buffett, the world's richest investor. Buffett is a renowned value investor who follows Benjamin Graham's timeworn principles, a standard not unlike our own focus. Alas, in times like these, value investing has fallen out of favor; a sad situation, as these times are ideal for value hunters. Buffett writes prolifically every year in his company's annual report, and provides tidbits of long-lasting wisdom. Here are some excerpts that may help bring perspective to today's investor:

"2000. We purchased several companies whose earnings will almost certainly decline from peaks they reached in 1999 and 2000. The declines make no difference to us, given that we expect all of our businesses to now and then have ups and downs. (Only in the sales presentations of investments banks do earnings move forever upward.) We don't care about the bumps; what matters are the overall results. But the decisions of other people are sometimes affected by the near term outlook, which can both spur sellers and temper the enthusiasm of purchasers who might otherwise compete with us.

1990. The term "earnings" has a precise ring to it. And when an earnings figure is accompanied by an unqualified auditor's certificate, a naïve reader might think it comparable in certitude to pi, calculated to dozens of decimal places. In reality, however, earnings can be as pliable as putty when a charlatan heads the company reporting them. Eventually truth will surface, but in the meantime a lot of money can change hands. Indeed, some important American fortunes have been created by the monetization of accounting mirages. Funny business in accounting is not new. For connoisseurs of chicanery, I have anunpublished satire on accounting practices written by Ben Graham in 1936. Alas, excesses similar to those he then lampooned have many times since found their way into the financial statements of major American corporations and been duly certified by big-name auditors. Clearly, investors must always keep their guard up and use accounting numbers as a beginning, not an end, in their attempts to calculate true "economic earnings" accruing to them.

2001. Two years ago, reporting on 1999, I said that we had experienced both the worst absolute and relative performance in our history. I added that "relative results are what concern us," a viewpoint I've had since forming my first investment partnership on May 5, 1956. Meeting with my seven founding limited partners that evening, I gave them a short paper titled "The Ground Rules" that included this sentence: "Whether we do a good job or a poor job is to be measured against the general experience in securities. "We initially used the Dow Jones Industrials as our benchmark, but shifted to the S&P 500 when that index became widely used. Some people disagree with our focus on relative figures, arguing that "you can't eat relative performance." But if you expect? As Charlie Munger, Berkshire's Vice Chairman, and I do? That owning the S&P 500 will produce reasonably satisfactory results over time, it follows that, for long-term investors, gaining small advantages annually over that index must prove rewarding. Just as you can eat well throughout the year if you own a profitable, but highly seasonal, business such as See's (which loses considerable money during the summer months) so, too, can you regularly feast on investment returns that beat the averages, however variable the absolute numbers may be.

1994. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.

But, surprise none of these blockbuster events made the slightest dent in Ben Graham's investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.

A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these or to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.

Stock prices will continue to fluctuate sometimes sharply and the economy will have its ups and down. Over time, we believe it highly probable that the sort of businesses we own will continue to increase in value at a satisfactory rate.

The future is never clear, you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values."

To send comments or to learn more about Scott Pearson's Investment Advisor Services, visit http://www.valueview.net

Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.

---

Retirement ? Can You Afford It?

Every day you work is one day closer to your... Read More

Do You Want Money?

Let me ask you a very simple question. Do you... Read More

Getting An Offshore Bank Account Via The Internet

There is no need to use the many middleman websites... Read More

WARNING: The Biggest Lie About Compound Interest

Have you wondered why financial experts only tell you certain... Read More

Top 7 Ways To Get Rich

Want to be one of the lucky ones on the... Read More

A College Degree or an MBA is NOT NEEDED to be Financially Free

Look at Forbes' top 10 United States wealthiest people. Notice... Read More

Residual Income - The Myth

"Join our program and retire in 3 months..." yeah, right.We... Read More

Starting With Smaller Goals First And Work Your Way Up Until You Achieve Financial Freedom

While you need to have a lot of positive-thought and... Read More

Surefire Ways to Attain Moneymaking Success

You have probably heard other people say that "Money isn't... Read More

How Much Do You Need To Earn Per Hour To Achieve Your Yearly Financial Goals

Have you ever asked yourself what your highest income producing... Read More

Creating Money, Prosperity, and Abundance Now (Part 1)

I have given many prosperity lectures over the years and,... Read More

The 11 Best Money Saving Ideas of All Time - Part 4

At any time in history, no matter what the current... Read More

Gain More Control of Your 401k - What It Can Mean to Your Future

Points to ponder as you consider what can be done... Read More

Real Estate Stories that Show You How!

Let's begin easing you out of the pits. I mean,... Read More

Residual Income - 3 Ideas for Long Term Profits

A residual income is one that comes in no matter... Read More

Saving Money - 35 Pieces of Advice to Save

There are only 2 ways to grow your wealth -... Read More

Uncle Sams Snake Oild

Uncle Sam and his band of merry-men, better known as... Read More

Who Wants To Be A Millionaire?

Steve Martin once delivered an opening monologue for Saturday Night... Read More

My Entrepreneurial Fire-I Grabbed My First Million Before I Got Too Old

My First Million took me exactly 27 months to achieve.... Read More

Wealth Management, Wealth Protection, and Tax Planning

U.S. Supreme Justice Louis D. Brandeis"I live in Alexandria Virginia.... Read More

Does Money Grow On Trees?

"Money Doesn't Grow On Trees."Some of us even believe it.... Read More

Increasing Your Wealth by Increasing Your Financial Literacy

Perhaps the primary message of Rich Dad, Poor Dad is... Read More

Wealth Creation and Mortgage Planning - Two Great Tastes that Taste Great Together

What if I were to tell you that almost everything... Read More

Generate Savings with Smart Use of Electricity!

No matter what income level you are currently at, generating... Read More

Four Pillars of Creating Wealth

Some people in this world are thinking that their poor... Read More

Want Money? You Got It!

Six out of six people who were asked to list... Read More

Prosperity

An ellipsis to your success is hidden in the word... Read More

10 Ways to Save $50 Per Month: The Art of Pinching a Penny Until It Screams

1. Save up to 50% per month on convenience cleaner... Read More

Financial Freedom, Is It Only A Dream or Just Steps Away?

Almost all of us go to work everyday and do... Read More

How to Make More Money

When I was a student in London, I had a... Read More

The Financial Equation that Will Set You Free!

I have a good friend who works in an area... Read More

Top 10 Secrets of Getting Rich!

As many people have observed, "Success leaves clues." If you... Read More

Who Will Become Wealthy in the Information Age?

As you know, we're now well and truly in theInformation... Read More