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Financial Happenings Blog
Sunday, April 27 2008

The Australian Financial Review ran a piece in Thursday's paper reporting on Warren Buffett's latest seminar with business students in the USA.  He holds such events some 15 times a year and he students get to tour one or two of Berkshire Hathaway's businesses and then proceed to Berkshire's headquarters in downtown Omaha.  While there Buffett provides the students with a two hour question and answer session. This time the sage of Omaha hosted 150 students from the University of Pennsylvania's Wharton School.  My wife's cousin is currently attending Wharton completing an MBA and I will be following up whether he grabbed hold of any other tips in a later blog!!


Buffett also invited along Fortune who reported on the event from which Barrie Dunstan in the AFR has based his comments.  A link to the Fortune article follows - What Warren thinks.


The article the AFR focus on the following comments made by Buffett:


"Well, if they're not going to be an active investor - and very few should try to do that - then they should just stay with index funds. Any low-cost index fund. And they should buy it over time. They're not going to be able to pick the right price and the right time. What they want to do is avoid the wrong price and wrong stock. You just make sure you own a piece of American business, and you don't buy all at one time."


Buffett followed up these comments with these pearls:


"... you don't want investors to think that what they read today is important in terms of their investment strategy. Their investment strategy should factor in that (a) if you knew what was going to happen in the economy, you still wouldn't necessarily know what was going to happen in the stock market. And (b) they can't pick stocks that are better than average. Stocks are a good thing to own over time. There's only two things you can do wrong: You can buy the wrong ones, and you can buy or sell them at the wrong time. And the truth is you never need to sell them, basically. But they could buy a cross section of American industry, and if a cross section of American industry doesn't work, certainly trying to pick the little beauties here and there isn't going to work either. Then they just have to worry about getting greedy. You know, I always say you should get greedy when others are fearful and fearful when others are greedy. But that's too much to expect. Of course, you shouldn't get greedy when others get greedy and fearful when others get fearful. At a minimum, try to stay away from that."


Two final answers from Buffett were reported:


"By your rule, now seems like a good time to be greedy. People are pretty fearful.

You're right. They are going in that direction. That's why stocks are cheaper. Stocks are a better buy today than they were a year ago. Or three years ago.


But you're still bullish about the U.S. for the long term?

The American economy is going to do fine. But it won't do fine every year and every week and every month. I mean, if you don't believe that, forget about buying stocks anyway. But it stands to reason. I mean, we get more productive every year, you know. It's a positive-sum game, long term. And the only way an investor can get killed is by high fees or by trying to outsmart the market."


Buffett's comments are very sound.  They back up what we have distilled from the academic / scientific research that has been conducted.  A summary of this can be found on Our Research Based Approach web page.


The only change for Australian investors is to exchange American business with Australian business and they are on a winning strategy.



Scott Keefer

Posted by: Scott Keefer AT 05:18 pm   |  Permalink   |  Email
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