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More Tips from the Oracle of Omaha

Here are some additional words of wisdom from Warren Buffett that we thought you also would enjoy. These are valuable lessons that sometimes get lost in media hype and our oftentimes focus on short-term results:

Buy when everyone else is selling

"Fear is a contagion in the stock market. Legitimate concerns about an industry, sector, or the entire market often spread like wildfire, driving down the stock prices not just of troubled firms, but also of other companies who are in good shape." Buffett knows this well, and throughout his career he has made hay by buying good stocks or companies when more fearful investors sat on the sidelines, passing over bargains.

That part of Buffett's approach was evident in late 2008 and 2009, as he used the financial crisis and bear market as opportunities to do some bargain shopping. "It's been an ideal period for investors: A climate of fear is their best friend," he writes. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts is what you pay for a business through the purchase of a small piece of it in the stock market and what that business earns in the succeeding decade or two."

Buffett has made no bones about the severity of the financial crisis and economic trouble. But while others have said the financial crisis will lead to a "new normal", and that things are "different this time", he has maintained that the economy will work things out and get back to "normal". He has strong faith in the ability of good businesses to weather these financial storms and has kept his eyes open for opportunities to add more instead of running away from the markets when many were shouting "Exit!"

"Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble", declares Buffett.

Avoid the hype of the media and analysts

"Investors who buy and sell based upon media or analyst commentary are not for us," Buffett wrote.

The importance of being defensive and not trying to outperform all the time
"Though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the 11 years during which it delivered negative results. In other words, our defence has been better than our offence, and that's likely to continue."

The importance of owning investments with income streams

"We own positions in non-traded securities of Dow Chemical, General Electric, Goldman Sachs, Swiss Re, and Wrigley with an aggregate cost of $21.1 billion and a carrying value of $26 billion. We purchased these five positions in the last 18 months (Sept 2008 - Feb 2010). Setting aside the significant equity potential they provide us, these holdings deliver us an aggregate of $2.1 billion annually in dividends and interest."

Secret to Success

We end with Buffett's most important lesson regarding investing:

"To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What's needed is a sound intellectual framework for decisions and the ability to keep your emotions from corroding that framework."

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