Warren's Edge

Warren Buffett said the American Economy has just fallen off a cliff. Most of you know him as a business mogul, or a billionaire celebrity, or maybe as a philanthropist, but the world of finance knows him in quite a unique way. I’ve laced this piece with some of his silky fine thoughts, to remind us how wisdom doesn’t expire.

In the financial world, Warren Buffett is like our dad. No matter how much truth and wisdom he tries to pass on to us, we all end up ignoring him in the end. There’s a general impression that he is too old school to really know what’s going on in today’s business world. His investment principles are largely ignored by investment banks, hedge funds, and other money managers.

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.

But that’s so boring, Dad! It’s not that we think he’s wrong; it’s just that we want to do things our way. Wall Street is under the impression that he simply does not understand some of the more sophisticated ways of investing, or he’s too risk averse to get into the new way of investing.

Derivatives are financial weapons of mass destruction.

But the truth is he understands almost everything about investing. What he doesn’t care for is speculation. Buffett has a publicly listed stock on the New York Stock Exchange (BRK.A). But you can’t speculate on it the way you can with other stocks. Berkshire Hathaway, which is a holding company for several other private and public Buffett-approved business ventures, trades for over $70,000 per share. He’s fully aware of how to make that stock more affordable, but he has no interest in doing that. He wants you to think long and hard before purchasing it. He doesn’t want impulsive or whimsical speculators. He wants long term investors.

Risk comes from not knowing what you're doing.

Buffett is like the Jenny Holzer of finance. You can read what he writes, and just brush it off as something so obvious that it’s not insightful. But when the unexpected happens, you’ll realize that these are the only truths we can know. I suspect the whole world is listening to him right now.

Only when the tide goes out do you discover who's been swimming naked.

This is a piece he wrote for Fortune magazine back in 2003. It is somewhat lengthy, but I urge you to read at least the first part where he describes a story of two simple island economies. He uses this to illustrate what is a very real possibility: a dramatic shift of economic power from the US to other nations. He even admits to putting his "money where his mouth" is by purchasing the currencies of other nations. That isn't just speculation, it’s an investment.