Last May, 35,000 shareholders crowded into Berkshire Hathaway's (BRK.A, news, msgs) annual shareholders meeting. One of the faithful asked a fundamental question: "What is the secret to value investing?"
According to an article in Harper's Magazine -- "The Church of Warren Buffett: Faith and Fundamentals in Omaha" -- Buffett replied with all the serenity of the Buddha: "Independent thinking and inner peace."
Independent thinking is the traditional left-brain wisdom you'd expect from a Western leader. But inner peace? That's hot Eastern wisdom served with down-home Nebraska wit by Buffett the Buddha.
Recently, I reflected on the world's wild ride since the catastrophe that Wall Street's Scrooges created more than a year ago. Through it all, the Lazy Portfolios I run at MarketWatch were, like Buffett, quite serene. (Click here for a look at the Lazy Portfolio pages.)
I started wondering how the inner peace and wisdom of three of my heroes -- Buffett, Buddha and Vanguard Group founder John Bogle -- would translate into meditations to help Lazy Portfolio investors. Suddenly it all came together in the 12 "Zen millionaire" principles we've written about before.
Here's how I see our three wise men meditating on Lazy Portfolios in 2010:
1. Zen first -- get it before you get the million
Buffett the Buddha was born with it."I am really no different from any of you," he says. "I may have more money than you, but money doesn't make the difference. Sure, I can buy the most luxurious handmade suit, but I put it on, and it just looks cheap. I would rather have a cheeseburger from Dairy Queen than a $100 meal. . . . If there is any difference between you and me, it may simply be that I get up every day and have a chance to do what I love to do."
And he still "tap-dances into work every day."
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2. Your mind creates money
"We are what we think," Buddha says. "Our thoughts create our world." Today, Wall Street's thoughts are driven by a mindless, obsessive addiction to get rich quick, creating a world of endless self-destructive bubbles. In contrast, Buffett creates long-term wealth."One of the keys to Buffett's success," says an admirer, "is compounding. . . . If you put $2,000 a year into an IRA for just eight years, until you are 27, when you retire at age 65 the $16,000 will have ballooned to over $1 million. You do not need unusually high returns to make good money with compound interest, but you do need to be consistent."
Bogle adds: "Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner's game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after Wall Street's substantial costs of investing are deducted, it becomes a loser's game."
3. Being rich is 'nothing special'
Ancient Zen masters warned students that enlightenment is "nothing special." Neither is having a million. Nor even a billion, to Buffett."Of the billionaires I have known, money just brings out the basic traits in them," he says. "If they were jerks before they had money, they are simply jerks with a billion dollars."
4. Investors play a lazy game of solitaire
The Buddha: "Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense."Bogle introduced us to the Lazy Portfolio doctrine: "Start with the total stock market index. The idea is to own the stock market, own every company in America, and hold it for Warren Buffett's favorite holding period: forever. And that's the secret: Own everything, and hold it forever. The S&P 500 ($INX) is about 80% of the value of the total stock market." The Wilshire 5000 (WFIVX) is a great alternative.
The Second Grader's Starter Portfolio consists of just three funds, including the Bogle-recommended big-cap index fund plus the Total Bond Index (VBMFX) and Total International Stock Index Fund (VGTSX). The portfolio's 33.3% returns beat the S&P 500, proving Buffett's point that "a great IQ is not needed to do well as an investor," just "the ability to detach yourself from the crowd."
We know the crowd will focus on the two hottest funds in the eight Lazy Portfolios: Vanguard's Emerging Markets Stock Index (VEIEX) was smoking at 79% this year, and its REIT Index Fund (VGSIX) at 39%. But remember: Diversify, don't just trade hot funds of stocks.
5. No outside authorities; you are centered within
"The future is never clear," Buffett warns. "You pay a very high price in the stock market for a cheery consensus." Strategy: Don't do trading; buy value; never sell."I never have the faintest idea what the stock market is going to do in the next six months or the next year or two," Buffett says. "But I think it's very easy to see what's going to happen over the long term."
Continued: You are always a beginner
