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 In an excerpt of his annual letter to shareholders published online
by Fortune on Monday, Buffett used a 1986 purchase of a farm located
50 miles north of Omaha to support his case about simple,
diversified and low-cost investing.
He had bought the farm because he could weigh how much the property
would yield in corn and soybeans against its operating costs — and
not to speculate on the value of the land or to sell it as soon as
prices rose.
"Now, 28 years later, the farm has tripled its earnings and is worth
five times or more what I paid," Buffett wrote in his annual letter
to shareholders, adding that he has visited the property only twice.
"So ignore the chatter, keep your costs minimal, and invest in
stocks as you would in a farm."
Buffett's advice reflected, as well, his bias toward holding assets
for the long term. Rather than a constant flux of buying and
selling, Buffett said investors should treat daily price changes as
background noise, to be ignored in pursuit of a greater objective.
"The goal of the nonprofessional should not be to pick winners — neither he nor his 'helpers' can do that — but should rather be to
own a cross section of businesses that in aggregate are bound to do
well," he wrote.
For nonprofessionals, such as mom-and-pop investors saving for
retirement, Buffett recommended a low-cost S&P 500 index fund,
particularly highlighting Vanguard's. That mutual fund has a net
expense ratio of 0.17 percent.
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Buffett — ranked the world's fourth-richest person by Forbes
magazine, with a fortune of $53.5 billion — also dismissed much of
the market- and economy-watching that informs daily price
fluctuations and, often, future price speculation.
"Forming macro opinions or listening to the macro or market
predictions of others is a waste of time," wrote the man dubbed "the
Oracle of Omaha" because of his performance in the markets.
Investors should instead focus on the future productivity of assets,
rather than speculating on price movements, which Buffett said that
he was unable to do successfully.
"Games are won by players who focus on the playing field — not by
those whose eyes are glued to the scoreboard."
Berkshire Hathaway is expected to report its 2013 earnings on
Saturday.
(Reporting by Luciana Lopez; editing by
Bernadette Baum)
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