Sage Investment Advice from the Oracle of Omaha
Use Buffett's words of wisdom and Morningstar's research to boost your returns.
Toward the end of each February, Berkshire Hathaway (BRK.B) CEO Warren Buffett pens his annual letter to shareholders, wherein he reviews the conglomerate's prior-year results and also takes the opportunity to comment on topical issues in the investment world. The latter is usually a mix of homespun wisdom and satirical allegories that I think, if followed, can help most people become significantly better investors.
In Berkshire's 2006 shareholder letter, released last Thursday, Buffett commented for the second year in a row on how the fees charged by many investment managers--primarily private equity funds and hedge funds--continue to dent investor returns. Buffett used the example of a hedge fund generating a 10% gross return, but after giving effect to both the management and performance fee, the fund's investors would only have realized a 6.4% net return. Even though Buffett used 10% only as an example, it's not an entirely unrealistic return, and as Buffett points out, a low-cost investment in an S&P 500 index fund earned about a 15% return, costing investors only a "token fee."
Justin Fuller does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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