What would Warren tell you?

If you sent a letter to Warren Buffett asking for some investment advice, what do you think you’d get in the return mail? A board member of the San Francisco employee pension fund found out. What exactly did Mr. Buffett’s handwritten note say?

The $20 billion pension fund had been considering an investment in hedge funds. The board member described the fund’s financial situation and goals, and asked for advice. Mr. Buffett’s scribbly but crystal clear reply: “I would not go into hedge funds – would prefer index funds.”

Indexing is good enough for Mrs. Buffett
We’re not surprised by this answer. He’s described the advantages of index investing in his annual letter to Berkshire Hathaway shareholders. He’s offered the same advice on CNBC many times. He’s even publicly stated that upon his death his wife’s inheritance should go into low cost index funds. And now he’s promoting the same idea for a huge pension fund.

I think he’d offer you the same advice.

I applaud the board member for asking the question in the first place. When giant institutions, with access to any investment on earth, start questioning the suitability of high fee, opaque investments like hedge funds, it’s a good cue for individuals to do the same. (See how hedge fund investments are shrinking.)

I encourage all investors to ask the same kind of question — “What’s the right investment for me?” It’s really the only question that matters.

John Osbon – josbon@osboncapital.com