The Oracle of Omaha

The Chairman of the Board of Berkshire Hathaway Inc. is perennially in the top three of the Forbes magazine list of wealthiest Americans. Warren Buffett’s letter to shareholders in the company’s annual report is must reading for many. The letter has become so popular that it is copyrighted and posted on Berkshire’s web site with access given to everyone. The first letter, written in 1978, discloses information about Blue Chip Stamps, one of Berkshires major holdings. The letters contain an aw-shucks overview of the company’s financial performance and explanations of how their major businesses work, including how to make money in the insurance business. They are filled with criticism of other corporate leaders and their outsized compensation packages, which in the end are not tied to actual financial results.

In his latest letter, as in most, Buffett, with his homespun style, offers his investment advice. Not flashy, but sound strategy for the long run.

“The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”

“Human behavior won’t change. Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something “extra” in investment advice. Those advisors who cleverly play to this expectation will get very rich.”

“Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.”

The folksy letter finishes with summary of the upcoming shareholders meeting, a three-day bacchanal for the conservative investor. Nearly forty-thousand shareholders will travel to Omaha for the event.