Heed Investment Wisdom from a Master

Physician's Money Digest, October 2006, Volume 13, Issue 10

Every May, thousands makea pilgrimage to Omaha,Neb, to attend a unique meetingon global business.On May 6, 2006, BerkshireHathaway's Chairman and CEOWarren E. Buffett welcomed 24,000devotees to the Quest Center in downtownOmaha for an event that has beendubbed a "Woodstock for Capitalists."

Profitable Experience

Attending the Berkshire annualmeeting is a transformational event.Those who attend receive pricelesslessons in business, investing, and life.Long-time shareholders have alsoprofited handsomely—a share of BerkshireHathaway could have been purchasedfor $70 in 1971 and now sellsfor over $90,000.

During the meeting, Buffett andCharles T. Munger, his long-time partner,sit on a dais and field questionsfrom the audience for nearly 5 hours.There is no restriction on the subjectmatter of the questions, so theyrespond to inquiries in fields as diverseas terrorism, Social Security, the financialperformance of Berkshire or itssubsidiaries, and advice for studentsand aspiring investors. AlthoughBuffett just celebrated his 75th birthday,he displayed great energy andmental acuity as he fielded questions.

Investing and Life Insights

The following are some investinghighlights from the meeting (visitwww.valueinvesting.info for a longertranscript of the meeting).

Munger:

It is a wise policy to trumpetyour failures and to stay quietabout your successes (in response to aquestion about commodities, Buffettadmitted that he had made the mistakeof buying a large stake in silver tooearly and then selling it too early).

Buffett:

My desk has three boxes(metaphorically speaking): "In," "Out,"and "Too Hard." We put a lot of stuffin the "Too Hard" basket. It is importantto know and stick to your circles ofcompetence and pass on things thatdon't fit squarely in your areas ofexpertise (later when a questioner askedabout what they thought could be doneto improve and fix some of the problemsin the $2-trillion health care industry,Munger quipped that that one wasdefinitely in the "Too Hard" category).

Buffett:

More than half the companiesin America have executive compensationschemes that are grosslyunfair to the owners—in part becauseof management overreaching and inpart because so many companies nowrely on outside compensation consultantsto set the incentives without properoversight by the board of directors.

Buffett:

The worst of the sevendeadly sins must be envy—it makesthe sinner suffer more than anyoneelse (there was much laughter when hequipped that at least gluttony, whichhe could fault himself with at times,and possibly lust, had some upsidesfor the sinner).

In response to a question about thecurrent boom in commodities investing,Buffett observed that major marketmoves often start out with somefundamentals (ie, a supply and demandimbalance), but that there is usuallya point when speculators begin todominate the price movements. Speculationdominates once the positiveprice gains establish a long enough historyto attract a much wider following.His guess was that certain commoditymarkets, such as copper and silver,might be in such a speculative phasetoday. If you invest during these times,you are playing with fire and riskingdisaster when the party ends. His generaladvice was to stay away, summarizinghis thoughts with the observation,"What the wise man does in thebeginning, the fool does in the end."

If you are serious about securingyour financial freedom, it is a greatidea to study Buffett's ideas or evenattend the annual meeting in person. Itis an investment in time that will surelypay many personal, intellectual, andperhaps even monetary dividends inthe years to come.

Kaushal B. Majmudar, CFA, is president ofthe Ridgewood Group, a Short Hills,NJ-based money management firm focusingon intelligent investing that is rated 5-Stars, their highest rating, by the PaladinRegistry. Founded by Mr. Majmudar and Ms. Ahalya Nava, aHarvard Business School graduate, the Ridgewood Grouphelps clients around the country manage their wealth moreintelligently. They welcome questions or comments at 973-544-6970 or info@ridgewoodgrp.com. For more information,visit www.ridgewoodgrp.com.