StreetTalk: The Buffett Way 2006

All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies
Jul 01, 2006
Volume 19, Issue 7

Brian O'Connell
Regular readers of this column know how I feel about Warren Buffett, often called the Sage of Omaha, NB. I wrote about Buffett last year and, after the mid-point of this year, would like to update you on what Wall Street's finest mind thinks about key investment matters of the day.

The question Buffett gets asked most often is, "What is the secret to your investment success?" It doesn't matter if it's a biotech analyst or a junior high school math student with an online trading program; people want to know how he managed to accumulate $44 billion in investment profits.

Buffett answers this question the same way every time: the secret to investing is that there is no secret. "All there is to investing," he says, "is picking good stocks at good times and staying with them as long as they remain good companies."

Buffett has excelled over the past 40 years at the helm of Berkshire Hathaway, one of the most successful investment companies in the history of Wall Street. The $44 billion company is like a block of granite in an otherwise fragile investment environment. Astute investments in brand-name value plays like Coca-Cola, H&R Block, American Express, and Comcast have fueled Berkshire Hathaway's rise to the top of the global investment pile. Buffett's not much of a life sciences investor; he says he doesn't understand the complexities of the drug manufacturing and approval pipeline. He prefers solid, no-nonsense companies that offer investors the three things that Buffett prizes in his investment picks—steady growth, good management, and no surprises. Buffett's results speak for themselves.

Every May Berkshire shareholders descend on Omaha for the company's annual meeting. Berkshire Hathaway's annual meetings are almost mythical events, with a small army of Berkshire investors—and Buffett zealots—hanging on his every word. Investors began lining up for seats at 4 a.m. to get the best seats at the May 2006 general meeting.

The Berkshire road show is a staple for company investors. Berkshire investors still talk about 2002, when they saw a film of Warren Buffett playing a ukulele and singing, "When the NASDAQ's down, you'll never frown, Berkshire's here to stay."

Attendees were not disappointed this year. Buffett and long-time business partner Charles Munger held court for six hours, taking all questions and explaining why, among other trends, Berkshire Hathaway is looking overseas for value, and why the duo is still bearish on the US dollar.


When it comes to the Berkshire portfolio, some things never change. At the 2006 shareholder meeting, which drew 24,000 investors to Omaha, Buffett explained how he and Munger evaluate investment opportunities.

He told the audience that the pair rely on three metaphorical boxes: an 'In," an "Out," and a "Too Hard." Anything in the "Too Hard" box is dismissed. The "In"s are evaluated and, if they pass muster, they are pursued and purchased and moved into the "Out" box. "We zero in on things we know, like whether people will be buying more candy in five years," Buffett told the audience. "We don't play big trends. They just don't mean that much. There is too much money to be made year-to-year, rather than waiting for the big trends."

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