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Stock Strategist

Sage Investment Advice from the Oracle of Omaha

Use Buffett's words of wisdom and Morningstar's research to boost your returns.

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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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