Buffett's Advice for Young Investors

Growing rich
Some of his advice is for investors of all ages.

While discussing the importance of learning about investing, Buffett mentioned in passing that by the age of 10, he had read every book on investing in Omaha's public library.

In answering a 10-year-old girl's question about how to earn money(he recommended a paper route when she became a little older), herelated having tried about 20 businesses by the time he graduated fromhigh school (apparently the most successful one was a pinballbusiness). Charlie Munger's advice to the little girl was that shebecome a very reliable person.

Lessons from Davy
In the Berkshire movie, aportrait of Warren Buffett in his early twenties emerged during a partthat paid tribute to Lorimer Davidson (also known as Davy), GEICO'sformer CEO. The initial meeting between Buffett and Davidson was alsodiscussed in the 1995 Berkshire Hathaway chariman's letter.

In 1951, Buffett was studying economics at Columbia Business Schoolunder Benjamin Graham. He learned that Graham was chairman ofGovernment Employees Insurance Co., the predecessor to GEICO. So on acold Saturday, this 20-year-old student took the train to Washington,D.C., and headed to the headquarters, uninvited.

To his surprise, the company doors were locked, but he knocked untila custodian opened the doors. Buffett asked whether there was anyone totalk to, and was told that one man was working that weekend. Buffettintroduced himself to Davidson -- then assistant to the president -- asone of Graham's students and asked whether he could ask some questions.

In the movie, Davy recalled how the conversation lasted more thanfour hours and how the young Buffett asked very detailed, thoughtfulquestions. Buffett reminisced on what a seminal half-day it was in hislife.

Seeing that intelligence, work ethic, and determination at an earlyage, one can understand how he has become so successful over the years.

Buffett's investing advice
So how would ayoung Warren invest much more modest sums, say $500,000 to $1 million,was the gist of another question. Buffett said that if he was workingwith that amount of money, he would do things differently than he isnow.

He related that when he was younger, he had more ideas than money --now he has more money than ideas. Early in his career, Buffett wasfrequently thinking about which stock to sell to raise money to buy anew stock with better prospects.

He also emphasized how difficult it is to earn extraordinary returnson large amounts of capital and the technical difficulties involved inpurchasing huge number of shares without tipping off everyone thatBerkshire is buying.

So investors with smaller amounts to invest have some definiteadvantages over larger investors, assuming that these small investorshave solid investment ideas and behave in a rational manner --particularly during irrational market times.

Giving back
Whenever I fly somewhere, I try to read a book during the flight, so I read Napoleon Hill's Think and Grow Rich,first published in 1937. Andrew Carnegie had given Hill the task ofdiscovering and writing about the money-making secret used by hundredsof millionaires, including Carnegie.

To quote from the preface, "When he saw that I grasped the idea, heasked me if I would be willing to spend 20 years or more preparingmyself to take it to the world, to men and women, who without thesecret, might go through life as failures. I said I would, and with Mr.Carnegie's cooperation, I have kept my promise."

What was crystal clear at the meeting was that Buffett was thinkingsomething similar. He had grown rich at an early age and was bringinghis wisdom to the larger world.

For more coverage of the Berkshire meeting:

• Live From Omaha: The Berkshire Hathaway Meeting

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