Berkshire Hathaway Chairman Warren Buffet is widely regarded as one of the most successful investors of all time. From Berkshire’s headquarters in Omaha, Nebraska, Buffet’s comments about the economy and markets are closely followed. Every year Buffet writes an annual letter to shareholders and this year his comments are especially poignant as he reflects on his investment style and the lessons to be learned from investing during the economic crisis of past two years. The following are excerpts from Buffet’s letter to shareholders as summarized by The Wall Street Journal:*

Stay Liquid. "We will never become dependant on the kindness of strangers," he wrote. "We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses."

Buy when everyone else is selling. "We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend....Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble."

Don’t buy when everyone else is buying. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance."

Value, value, value. "In the end, what counts in investing 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."

Don’t get suckered by big growth stories. Mr. Buffer reminded investors that he and Vice-Chairman Charlie Munger "avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be." Most investors who bet on the auto industry in 1910, planes in 1930, or TV makers in 1950 ended up losing their shirts, even though the products really did change the world. "Dramatic growth" doesn’t always lead to high profit margins and returns on capital.

Understand what you own. "Investors who buy and sell based upon the media or analyst commentary are not for us," Mr. Buffet wrote.

Defense beats offense. "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 eleven years during which it delivered negative results. In other words, our defense has been better than our offense, and that’s likely to continue."

Warren Buffet’s advice is well proven and a good reminder to us all to maintain a rational consistency when investing. Put another way, a solid investment plan, well followed will serve you well in good markets and bad.

Randy Gridley

March, 2010

* The Wall Street Journal, March 1, 2010, "The Oracle’s Tips for the Rest of Us"