Warren Buffett's Ground Rules: Words of Wisdom from the Partnership Letters of the World's Greatest Investor

by Jeremy C. Miller

The market can and will at times be completely deranged and irrational in the short term, but over the long term it will price securities in line with their underlying intrinsic values.

Here again we are reminded that you really can’t outsource your thinking—you have to do it yourself.

Einstein is said to have called compound interest the eighth wonder of the world and said that “those who understand it, earn it, and those who don’t, pay it.”

Buffett teaches investors that the power of compounded interest is unmatched by any other factor in the production of wealth through investment.

a $10 haircut skipped by Buffett in 1956 and instead invested in the Partnership would be worth more than $1 million today ($10 compounded at 22% for 58 years).

My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors—whether pension funds, institutions or individuals—who employ high-fee managers.4