Billionaire Warren Buffett, the second-
richest person in the U.S., will be
releasing his annual letter to
shareholders on Saturday, but in the
meantime, he gave fans and investors a
taste of "The Oracle of Omaha's" wisdom
in an excerpt.
In the excerpt edited by Fortune,
Berkshire Hathaway chairman and CEO
Buffett, 83, focuses on the lessons he
learned from two of his real estate
investments and how they represent his
investing ethos, with a twist.
Here are some of the most interesting
things that Buffett, one of the most
successful investors of all time, shares.
1.
Warren Buffett admits he knows nothing
about farming despite owning a farm for
28 years.
Buffett explains that he bought a 400-
acre farm 50 miles north of Omaha in 1986
for $280,000.
He admits he knew nothing about operating
a farm.
"But I have a son who loves farming, and
I learned from him both how many bushels
of corn and soybeans the farm would
produce and what the operating expenses
would be," Buffett writes.
That son is Howard Graham Buffett, 59,
who is his eldest child, director of
Berkshire Hathaway Inc. and president of
Buffett Farms.
Buffett has famously said he doesn't
invest in anything he doesn't understand,
instead sticking to companies with steady
returns, like insurance and candy.
Skip forward to today, when Buffett said
he still knows "nothing about farming,"
but he's made a handsome profit off the
farm.
"Now, 28 years later, the farm has
tripled its earnings and is worth five
times or more what I paid. I still know
nothing about farming and recently made
just my second visit to the farm," he
writes.
Read More: What Billionaires Wager During
March Madness: Warren Buffett and Dan
Gilbert
2.
Warren Buffett knows where the cool kids
are going to hang.
The second real estate investment Buffett
discusses is his stake in retail property
near New York University. He joined a
small group of investors in purchasing
the building in 1993, but he has yet to
visit the property.
True to his form, Buffett of course made
a killing, with annual distributions
exceeding 35 percent of their initial
equity investment.
"Income from both the farm and the NYU
real estate will probably increase in
decades to come," he writes. "Though the
gains won't be dramatic, the two
investments will be solid and
satisfactory holdings for my lifetime
and, subsequently, for my children and
grandchildren."
3.
"Don't swing for the fences"
"You don't need to be an expert in order
to achieve satisfactory investment
returns," Buffett writes. "But if you
aren't, you must recognize your
limitations and follow a course certain
to work reasonably well. Keep things
simple and don't swing for the fences.
When promised quick profits, respond with
a quick 'no.'"
4.
Why day-to-day movements of stock are
like "moody" farmers
"There is one major difference between my
two small investments and an investment
in stocks," Buffett writes. "Stocks
provide you minute-to-minute valuations
for your holdings, whereas I have yet to
see a quotation for either my farm or the
New York real estate."
Buffett shares an example related to his
farm in Nebraska.
"After all, if a moody fellow with a farm
bordering my property yelled out a price
every day to me at which he would either
buy my farm or sell me his -- and those
prices varied widely over short periods
of time depending on his mental state --
how in the world could I be other than
benefited by his erratic behavior?"
Buffett writes. "If his daily shout-out
was ridiculously low, and I had some
spare cash, I would buy his farm. If the
number he yelled was absurdly high, I
could either sell to him or just go on
farming."
5.
How the market is "like sex"
Buffett channels the late money manager
Barton Biggs when discussing the timing
of investments.
"The main danger is that the timid or
beginning investor will enter the market
at a time of extreme exuberance and then
become disillusioned when paper losses
occur," he writes. "Remember the late
Barton Biggs's observation: 'A bull
market is like sex. It feels best just
before it ends.' The antidote to that
kind of mistiming is for an investor to
accumulate shares over a long period and
never sell when the news is bad and
stocks are well off their highs."
6.
How Buffett's investing ethos shaped his
will
Buffet advises people to "invest in
stocks as you would a farm," and explains
that he has similar instructions in his
will.
"One bequest provides that cash will be
delivered to a trustee for my wife's
benefit," he writes, explaining that he
has to use cash for individual bequests,
"because all of my Berkshire Hathaway
(BRKA) shares will be fully distributed
to certain philanthropic organizations
over the 10 years following the closing
of my estate."
"My advice to the trustee could not be
more simple: Put 10 percent of the cash
in short-term government bonds and 90
percent in a very low-cost S&P 500 index
fund," Buffett writes in the letter.
And if you're wondering about what kind
of fund, he writes:
"I suggest Vanguard's. (VFINX)) I believe
the trust's long-term results from this
policy will be superior to those attained
by most investors -- whether pension
funds, institutions, or individuals --
who employ high-fee managers."
7.
Buffett's "best investment"
Buffett frequently refers to the book
"The Intelligent Investor" by Benjamin
Graham and calls it his "best"
investment, behind two other personal
buys:
"I can't remember what I paid for that
first copy of The Intelligent Investor.
Whatever the cost, it would underscore
the truth of Ben's adage: Price is what
you pay; value is what you get. Of all
the investments I ever made, buying Ben's
book was the best (except for my purchase
of two marriage licenses)."
Buffett's first wife, Susan, died in
2004. He married a former waitress,
Astrid Menks, in 2006.
richest person in the U.S., will be
releasing his annual letter to
shareholders on Saturday, but in the
meantime, he gave fans and investors a
taste of "The Oracle of Omaha's" wisdom
in an excerpt.
In the excerpt edited by Fortune,
Berkshire Hathaway chairman and CEO
Buffett, 83, focuses on the lessons he
learned from two of his real estate
investments and how they represent his
investing ethos, with a twist.
Here are some of the most interesting
things that Buffett, one of the most
successful investors of all time, shares.
1.
Warren Buffett admits he knows nothing
about farming despite owning a farm for
28 years.
Buffett explains that he bought a 400-
acre farm 50 miles north of Omaha in 1986
for $280,000.
He admits he knew nothing about operating
a farm.
"But I have a son who loves farming, and
I learned from him both how many bushels
of corn and soybeans the farm would
produce and what the operating expenses
would be," Buffett writes.
That son is Howard Graham Buffett, 59,
who is his eldest child, director of
Berkshire Hathaway Inc. and president of
Buffett Farms.
Buffett has famously said he doesn't
invest in anything he doesn't understand,
instead sticking to companies with steady
returns, like insurance and candy.
Skip forward to today, when Buffett said
he still knows "nothing about farming,"
but he's made a handsome profit off the
farm.
"Now, 28 years later, the farm has
tripled its earnings and is worth five
times or more what I paid. I still know
nothing about farming and recently made
just my second visit to the farm," he
writes.
Read More: What Billionaires Wager During
March Madness: Warren Buffett and Dan
Gilbert
2.
Warren Buffett knows where the cool kids
are going to hang.
The second real estate investment Buffett
discusses is his stake in retail property
near New York University. He joined a
small group of investors in purchasing
the building in 1993, but he has yet to
visit the property.
True to his form, Buffett of course made
a killing, with annual distributions
exceeding 35 percent of their initial
equity investment.
"Income from both the farm and the NYU
real estate will probably increase in
decades to come," he writes. "Though the
gains won't be dramatic, the two
investments will be solid and
satisfactory holdings for my lifetime
and, subsequently, for my children and
grandchildren."
3.
"Don't swing for the fences"
"You don't need to be an expert in order
to achieve satisfactory investment
returns," Buffett writes. "But if you
aren't, you must recognize your
limitations and follow a course certain
to work reasonably well. Keep things
simple and don't swing for the fences.
When promised quick profits, respond with
a quick 'no.'"
4.
Why day-to-day movements of stock are
like "moody" farmers
"There is one major difference between my
two small investments and an investment
in stocks," Buffett writes. "Stocks
provide you minute-to-minute valuations
for your holdings, whereas I have yet to
see a quotation for either my farm or the
New York real estate."
Buffett shares an example related to his
farm in Nebraska.
"After all, if a moody fellow with a farm
bordering my property yelled out a price
every day to me at which he would either
buy my farm or sell me his -- and those
prices varied widely over short periods
of time depending on his mental state --
how in the world could I be other than
benefited by his erratic behavior?"
Buffett writes. "If his daily shout-out
was ridiculously low, and I had some
spare cash, I would buy his farm. If the
number he yelled was absurdly high, I
could either sell to him or just go on
farming."
5.
How the market is "like sex"
Buffett channels the late money manager
Barton Biggs when discussing the timing
of investments.
"The main danger is that the timid or
beginning investor will enter the market
at a time of extreme exuberance and then
become disillusioned when paper losses
occur," he writes. "Remember the late
Barton Biggs's observation: 'A bull
market is like sex. It feels best just
before it ends.' The antidote to that
kind of mistiming is for an investor to
accumulate shares over a long period and
never sell when the news is bad and
stocks are well off their highs."
6.
How Buffett's investing ethos shaped his
will
Buffet advises people to "invest in
stocks as you would a farm," and explains
that he has similar instructions in his
will.
"One bequest provides that cash will be
delivered to a trustee for my wife's
benefit," he writes, explaining that he
has to use cash for individual bequests,
"because all of my Berkshire Hathaway
(BRKA) shares will be fully distributed
to certain philanthropic organizations
over the 10 years following the closing
of my estate."
"My advice to the trustee could not be
more simple: Put 10 percent of the cash
in short-term government bonds and 90
percent in a very low-cost S&P 500 index
fund," Buffett writes in the letter.
And if you're wondering about what kind
of fund, he writes:
"I suggest Vanguard's. (VFINX)) I believe
the trust's long-term results from this
policy will be superior to those attained
by most investors -- whether pension
funds, institutions, or individuals --
who employ high-fee managers."
7.
Buffett's "best investment"
Buffett frequently refers to the book
"The Intelligent Investor" by Benjamin
Graham and calls it his "best"
investment, behind two other personal
buys:
"I can't remember what I paid for that
first copy of The Intelligent Investor.
Whatever the cost, it would underscore
the truth of Ben's adage: Price is what
you pay; value is what you get. Of all
the investments I ever made, buying Ben's
book was the best (except for my purchase
of two marriage licenses)."
Buffett's first wife, Susan, died in
2004. He married a former waitress,
Astrid Menks, in 2006.