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James Berman

James Berman

Posted: October 17, 2008 11:20 AM

Warren Buffett Unplugged


When Warren Buffett speaks (which is rare outside his annual Berkshire Hathaway shareholders meeting), people should listen. Among all the TV pundits, hedge fund traders, economists, journalists and cocktail party guests, not one has as good an investment record.

He may need no introduction, but Buffett is the most successful investor the world has ever known, having amassed a fortune as the world's richest man (or neck in neck with Bill Gates depending on where the Microsoft and Berkshire stock trade on any given day) by buying stocks and holding them for the long-term. He has never been a market timer, trader or a speculator. His biggest talent is knowing the inherent limitations of such a strategy. He has always eschewed short-selling, punting on derivatives, market guesses and chartist strategies, believing them to be inherently dangerous and unsustainable. Even when he was not a wealthy man, he always chose to hold equities through thick and very thin, avoiding the temptation to sell when things appeared difficult, knowing that was the time prices were by definition lowest. His talent was never in timing markets, which he believes is impossible, but in good security selection -- that is, buying good companies for good prices. He only sells when things appear overpriced and too rosy, not when things look bleak and prices are low. He is also the world's greatest philanthropist, having assigned nearly all his Berkshire holdings to the Bill & Melinda Gates Charity.

Many of you know that we try to follow his investment principles. Our fund and investment accounts attempt his brand of long-term investment. If this all sounds like hero-worship, it is. Buffett is not an aberration. His legion of disciples and followers are a group of the most successful investors of all time, many of them billionaires themselves despite their lower profile: Munger, Davis, Miller, Lynch, Brandes, Klarman, Tepper, Gottesman, Whitman, Torray, Templeton, Dreman, Price, Mobius, Owens, Gayner, Berkowitz all of whom (and many more) have generated spectacular long-term returns -- despite very volatile and often disappointing short-term results -- by following Buffett's methods. Most remarkable, all of them have purchased stocks of different types, geography and sector, but have all done extremely well by following the Buffett cardinal rule: avoiding market timing, and buying good companies selling at good prices.

This doesn't mean to never sell stocks -- but only to sell them when the market is offering you too high a price, not too low a price.

But enough of my words. Please click on the link below to read Buffett's op-ed, which explains with more credibility than I or anyone else ever could, the case for stocks in this difficult and frightening environment:

Op-Ed