Superstar investor advises the faithful to stay broad May 4, 2002: 8:10 PM EDT
OMAHA, Neb. (Reuters) - Omaha's Civic Auditorium was packed to the rafters on Saturday to hear Warren Buffett and his business partner Charlie Munger describe their unique approach to long-term investing and slam fraudulent practices hurting U.S. companies.
More than 10,000 shareholders and fans made their annual pilgrimage to the Midwestern city for his Berkshire Hathaway Inc. (BRKa.N) annual meeting, in hopes of getting advice from the person Forbes magazine calls the world's second-richest man.
"There is no single metric I can give you that tells you now is a good time to buy stocks," Buffett told one shareholder who asked if price to earnings calculations play a role in good investing.
"It's more complex," Buffett said, describing the tenets of his "value" style of investing -- estimating what cash a business will throw off over the course of its life, working out the value of that cash now, and buying it for less.
"A great IQ is not needed to do well as an investor," Buffett said. What is needed is the "ability to detach yourself from the crowd." Buffett famously staying out of the technology sector a few years ago while other investors made vast profits. Buffett was vindicated when the Nasdaq later plummeted. Buffett's only tip was to buy a broad stock fund based on the Standard & Poor's 500 if one wants to invest in U.S. business but is unsure which companies will be winners.
Asked about corporate fraud in the light of recent meltdowns, Buffett said he and Munger had so far avoided being fooled in the 40 years or so they have known each other. "Many of the crooks look like crooks," said Buffett. "They have a smell about them."
"Wall Street loves them as long as they are pushing out securities," he added. Turning to the troubled area of corporate accounting, Buffett predicted that derivatives -- a major business for failed Enron Corp. -- would trip up other firms in the future. "There's no place with as much potential for phony numbers as derivatives," said Buffett.
Munger went further: "To say derivative accounting in America is in the sewer is an insult to sewage." Buffett's reinsurer, General Re, is currently unwinding its derivatives unit, taking some losses.
In terms of acquisitions, Buffett said he would "wait for a fat pitch" and was not actively seeking any deals. Buffett has repeatedly said he needs a $15 billion or so acquisition to keep Berkshire growing, but has not given any clues about what he might buy.
He said the mess caused by asbestos payments might bring buying opportunities as firms go into bankruptcy protection, though he would only buy if all liabilities were dealt with. The legal tangle of asbestos, where corporations and insurers are bleeding money to pay many people who are not even sick, is the "cancer of American corporate world," said Buffett.
Buffett, 71, beloved by shareholders, some of whom worry that Berkshire stock will drop when he dies, was asked if he had looked into cryogenic freezing after his death.
"Well, there's not much downside to it," Buffett replied.
