Buffet Advices Huge Risks Bring Fortune

○ Don’t Borrow to Invest

Berkshire Hathaway Chairman Warren Buffet, along with his lifelong friend and Vice Chairman Charles Munger, 84, had a conversation with stockholders from 9 a.m. to 3 p.m. yesterday.

The most frequently-asked question was about how to make big bucks.

Asked to give some of his investment principles for the public, he stressed "bold investments."

Buffet advised that he once felt like investing 75 percent of his assets in one place, although it was a rare event. He added, but if the things were right, it is worth trying. He warned, however, against investing 500 percent of one’s assets, implying that one should not borrow money to make investments.

When asked which investment vehicles an ordinary person in his or her 30s should use when making a $1 million, he recommended index funds which usually take out the least in commission. Munger added that despite all the talks of promised high returns by so-called specialists, actual returns are dismal in many cases, compared with the costs taken away in the name of commission.

○ Many Opportunities in Overseas Markets Including Korea

A shareholder asked, “If you don’t have enough money to invest, what would you do?” Buffet took an example of Korea, referring to opportunities available in foreign markets.

Buffet responded that he once bought stocks in Korea at unbelievably low prices, and gained huge returns. He lamented that he should have invested more, but regulations capped his investment.

So far, POSCO is the only company that Berkshire Hathaway has ever officially invested in. The U.S. investment firm still owns 4 percent of POSCO shares. Buffet reportedly has made personal investments in 20 other Korean companies.

○ The Quicker, The Better Investment

To a question on whether a chaotic financial market like the current one can serve as an opportunity for an investor, Buffet said that chaos in the bonds and other markets can reward an investor with huge returns, just as was demonstrated in the near-collapse of hedge fund Long-Term Capital Management in 1998 .

Munger also said that this type of opportunities are "rare and short in duration like a big fish catchable by a harpoon swims in the stream once a week."

Buffet also stressed the importance of swift decisions, saying that failure to make a decision within five minutes repeats itself again in five months.

Both of them stressed their conviction that one should not invest unless the investment is made in the field he or she knows best.

○ Like Parents, Like Children

A number of shareholders asked how to educate their children about investment. Even elementary students themselves directly asked Buffet many questions.

The chairman highlighted the importance of role-modeling. He said that children learn a lot prior to the formal schooling. In that sense, Buffet added, he had been blessed for having a wonderful father.

As to the economic policies of the U.S. presidential candidates, Buffet pointed out that they are smart but they are trying to cater to the voters.

Prior to the shareholders’ meeting, Buffet told Bloomberg TV that the worst time is over for Wall Street, although individuals still have to endure scorching time down the road.

Commenting on the Federal Reserve Board`s bailout of the Bear Stearns by helping JPMorgan’s acquisition, he said that the measure was appropriate to redirect the looming credit crunch.

kong@donga.com