The following is an excerpt from the Article 'Oracle' shares mantra in the Quad City Times Sunday March 13, 2005 pp. B10, B7
In this year's edition of Warren Buffett's annual letter to shareholders of Berkshire Hathaway, the man known as the 'Oracle of Omaha' offered two tips to small investors: Don't over-trade, and don't abandon ship just because everyone else is jumping.
Looking back over the last 35 years, Buffett noted that American business has delivered terrific results, which should have made it easy for investors to earn juicy returns. But for many, it hasn't been so simple. Buffett blamed investor missteps on three factors: high costs, often because investors trade excessively or spend too much on management fees; poor decisions based on tips and fads rather than solid research; and untimely exits from investment positions, usually after periods of stagnation or decline.
Investors should remember that excitement and expenses are their enemies. If investors insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful. It's a strategy that has worked well for Buffett's Omaha Neb.-based conglomerate, which has posted an average annual gain of 21.9 percent since 1965 - better than twice the return of the S & P 500 Index over the same period.
The advice offered by Buffett is very plain, common sense advice, but it's a very difficult thing to do. Less trading means lower costs, but also requires a strong stomach. It runs counter to the American way. In most endeavors, the more active you are, the harder you work at it, the better you do. But in investing, it's really not. Most of the great investors make very few decisions.
Buffett's long-term performance (21.9%), contrasted against last year's return (10.5%), provides a lesson in itself. If you have the will power to just sit tight, you can do big things. But be wise enough to look back at your past decisions and evaluate how they perform. A lot of people tend to bury their losses and forget about them. But even Buffett, a champion of buying and holding, is always re-evaluating. He is always looking back and trying to learn.
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