Simple Investing Advice from the Oracle of Omaha

Warren Buffett started with nothing and became one of the world’s richest men (around $50 billion); so when he speaks, as the old investment adage goes, “People listen.” They especially listen to his annual letter to the stockholders of his company, Berkshire Hathaway, which holds about 80 companies.

There are 2 noteworthy things about this regular set piece. The first, is how Buffett openly declares in simple terms, for everyone to follow, his guiding principles. And the second noteworthy thing, is how surprisingly few people seem to actually act upon his advice. Some just buy his stock at its current 6-figure price per share, mind you, and let him do the work.

During the 2008 financial meltdown, when the herd was rushing to sell, sell, sell, Buffett was buying $5 billion of Goldman Sachs. Which is worth many more billions now, don’t you know.

In his letters, he basically follows the principles set out by former Columbia University professor Benjamin Graham in his iconic The Intelligent Investor. In a nutshell, Graham’s “value” principles start with focusing on what an investment will actually produce, not on its price. Stick to what you know and do not try to predict what the economy or stock market will do.

“Keep things simple,” and when offered quick profits, always respond “No.” Look for investments that have limited downside, that have sustainable appeal and likely longevity.

So what should the average IRA/401(k) physician investor do? Make regular purchases of a low-cost stock index fund, Buffett says. These funds have built-in diversity, require no expertise or maintenance, and help to protect against emotional impulses to act on tips offered over the hospital cafeteria table, from relatives or in response to the daily “noise” that is the markets’ irregular gyrations.

It is particularly important to note Buffet’s emphasis on “low-cost.” We cannot control our return on our investment, but we certainly can control our cost of doing business. And, collectively, we have not a very good job of minimizing our fee exposure, because there is a multi-billion dollar industry built upon extracting out-sized fees from us.

In the recent low-interest-rate environment, particularly, small savings loom large when carried with compound interest over the course of our investing careers. For many of us, keeping costs low can amount to a 6-figure number tacked onto our net worth at retirement. So don’t casually wave off these “routine” costs—every dollar matters in a tax-deferred, compounding vehicle.

One bit of advice that I found helpful in maintaining clarity of understanding in the buy-sell continuum is to follow your general financial plan when buying some investment vehicle and always, always write down your sell criteria before you buy. Work with your (fee-based only, please) financial advisor on this. A plan is important, but its execution is critical.

A simple metaphor that I like for the importance of execution to financial, business, and medical practice success is McDonald’s. Everyone knows how to make the lowly hamburger, but it was Ray Kroc’s detailed plan and masterful execution that led him from a milkshake machine salesman to billionaire status.

When Warren Buffett speaks of the wisdom of his approach, he is being a bit ingenuous about his success because he has a large and talented staff to do the legwork for him. We do not, but we still can intuitively recognize that there is wisdom in a simple, low-cost planned approach to save regularly in a tax-deferred vehicle that might at least help save us from ourselves.