In his 2014 letter to shareholders, Warren Buffett had some advice for his wife’s trustee that might surprise us: “My money, I should add, is where my mouth is: My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”
Don’t Try to Outsmart the Market
Buffett has access to the best money managers in the world. If anyone can beat a broad index of stocks, it’s him and the managers he knows. And yet, his own wife’s money will be invested in a simple index fund of large U.S. companies. Why then does two-thirds of the investing public still either select mutual fund managers or pick stocks themselves? Does the typical investor really think they can outsmart the markets, something even Mr. Buffett doesn’t think his heirs and advisors can do?
We often encourage clients to avoid looking at their account values too often because we feel it usually does more to sabotage investment results (and emotional states) than help. Buffett agrees: “With my two small investments [Note: Buffett is referring to a farm and a New York commercial real estate property], I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field—not by those whose eyes are glued to the scoreboard.”
A Commitment to Renewable Energy
Speaking of focusing on the playing field, for years, traditional investors eschewed investments in renewable energy, feeling they were just an overpriced fad. Now, even America’s most famous “value investor” is a fan: “MidAmerican [which Buffett’s Berkshire Hathaway owns] now accounts for 7% of the country’s wind generation capacity, with more on the way. Our share in solar … is even larger.”
Buffett has demonstrated an uncommon ability to invest in companies with growing profits and revenues. It’s affirming to know that his instructions for his wife’s trust are so philosophically consistent with our strategy at Abacus, and that he invests in renewable energy.
I sincerely hope you enjoy the hours you’ll save this quarter by having a well-thought-out investment plan that doesn’t require you to watch CNBC, talk with your broker every other day, or wonder what move you ought to make next.
