By James Saft
(Reuters) – Here is Warren Buffett’s pension fund management advice in a nutshell: Be patient, buy only a few things, ignore the stock market until it becomes irrationally optimistic, at which point sell.
A recently released 1975 letter from Buffett to Washington Post owner Katharine Graham on the subject offers new insight into how early Buffett was to grasp both the difficulties of pension fund management and the inability of Wall Street to provide adequate solutions.
Perhaps even more valuable is the way the letter throws light on Buffett’s approach to value investing. Buffett tries to act not like a typical fund manager but like a company owner thinking about buying another company. The crucial ingredients: patience, to get a good purchase price; courage, to stick with your investment if the business is doing well but the market doesn’t agree; and a willingness to sell into a bubble when, as so often happens, one comes along.
First, let’s talk about Buffett’s letter to Graham. It’s a nice little story.
When Amazon.com founder Jeff Bezos bought the Washington Post for $250 million earlier this month, he bought a lot of problems, but none of them had to do with pension funds. That’s in large part because the Post was lucky enough to have Buffett as a board member, investor and adviser for many years, and smart enough to take his advice. The result: a pension fund with $1.4 billion in obligations and $2.4 billion in assets.