Pete Lee

Monday, March 07, 2005

The Wizard of Omaha

"I do this in the spirit of the farmer who enters his hen house with an ostrich egg and admonishes the flock: 'I don’t like to complain, girls, but this is just a small sample of what the competition is doing.' "

-Warren Buffett, in his 2004 Letter to Shareholders, which I believe should be required reading for anyone who invests money.

I'd also note that Warren Buffett, in a pleasant stroke of truth-in-advertising, compares the performance of Berkshire Hathaway with the stock market on the first page, noting:

"However the yearly comparisons work out, Berkshire’s long-term performance versus the S&P remains all-important. Our shareholders can buy the S&P through an index fund at very low cost. Unless we achieve gains in per-share intrinsic value in the future that outdo the S&P, Charlie and I will be adding nothing to what you can accomplish on your own."

Mutual funds can be a horrible value proposition (the reasons for this are somewhat complex). If you're not willing to take the time to research mutual funds, who their managers are, how long they've been there, and the effects of load costs (including management costs or commissions paid to your broker to buy them), then you'd be much wiser to invest your savings in an S&P Index fund which boasts none of the antics of money managers. By the way, I believe that a minimum of 3-6 months of money needed to cover basic living expenses should be set aside in any decent money market plan (to retain 1:1 dollar value vs. inflation, and not do much more).

With this plan, paranoia over investing is far less warranted.


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