Warren Buffett's bubble cash-out strategy revealed in 38-year-old letter
A letter from the legendary investor written 38 years ago details his view on pension funds
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 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.
Once you own shares, you need to treat them like a business owner rather than [an] … investor
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.
In 1975, not long after he had joined the board, Buffett sent Katharine Graham, then chairman and CEO, a 19-page private letter, recently published by magazine, outlining his concerns about pension fund problems and his approach to their solution.
It is well worth reading in its entirety, but in it he lays out exactly how grave, permanent and hard to keep are pension promises and - and this from a money manager - how difficult it is to find someone who can beat the market on your behalf.
