The Omaha Perspective

In early May, more than 30,000 Berkshire Hathaway shareholders descended on Omaha, Neb., to listen to Chairman (and superinvestor) Warren Buffett and his partner, Charlie Munger, answer questions for five hours. Here are some snippets, paraphrased:

On the dollar's outlook: It's unpredictable, but I guarantee the dollar will buy less in 10 to 20 years. No one knows exactly what will happen, but you can bet on inflation. We've always had inflation, though — the trick is to avoid runaway inflation.

On executive compensation: In our experience, boards of directors have relatively little effect on compensation. CEOs have managed to be an important determinant of their own compensation arrangements. CEOs appoint the compensation committees and they look for cocker spaniels, not Dobermans. Boards have done very little thinking about how to best pay executives and motivate them to not do the wrong thing.

On their reaction to the market downturn: It isn't as dramatic as the 1973-1974 downturn was. I'm going to be buying investments for the rest of my life. I would much rather pay half of X dollars than X dollars. I like lower prices. I realize that's not the way everyone feels. It just makes sense that when things are on sale you should be more excited about them. If stocks are down 40 percent on average, they're obviously more attractively priced than before.

On what young people should learn about investing: It's important to know how to value a business and to know how to judge the markets. You can disregard modern portfolio theory and many things they teach in business school. Know and stay within your circle of competence. Start small and learn as you go along. It's good to learn about accounting principles. The market is there to serve you. You don't need a high IQ , but rather an emotional stability and inner peace about the decisions you have made.

We'll offer a few more nuggets next week. In the meantime, you'd do well to read some of Buffett's educational letters to shareholders at www.berkshirehathaway. com.