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16 SEPTEMBER 2013
Sum m ary: Investment guru Warren Buffett has made tens of billions of dollars by follow ing a disciplined approach to investing.
Nearly 40 years ago he w rote a letter to the Washington Post detailing his key strategies for managing pension assets, and theyre
still just as relevant today as they w ere back then.
Key take-out: More than anything else, Buffett w arns people to be prepared over the long term to deal w ith inflation.
Key beneficiaries: General investors. Category: Portfolio management.
The superannuation system in Australia forces people to take on a tough role being the manager of their
pension assets. Roughly one-third of the assets of the superannuation system are now controlled by DIY funds.
Indeed almost 1 million people are dependent on the successful management of self-managed funds, and that
number is rising every year.
But with power comes responsibility: Running a DIY fund can be demanding, and in times of financial stress
(such as the years surrounding the GFC) the pressure can be quite intense.
There are multiple decisions that come with managing a pension account into and during retirement, but perhaps
the three most important issues are:
How quickly can assets be withdrawn?
How do you cope with inflation?
What mix of assets is appropriate?
As I said, its not easy, but there is help at hand and it comes from none other than Warren Buffett, the worlds
greatest living investor. To be precise, it comes from a memo sent nearly four decades ago from Buffett to the
former head of the Washington Post Company, in October 1975.
The Washington Post Company was the first major stock investment for Buffett and his Berkshire Hathaway
investment company in 1973 he put $10 million into the company, and by 1977 his investment had tripled.
As the investment matured Buffett became more engaged with the diversified newspaper company and he
became a key ally of the legendary publisher, Katharine Graham.
Buffett may have been making money hand over fist in what was then the glory days of The Washington Post
the newspaper had virtually brought the Nixon administration to its knees through the efforts of reporters Bob
Woodward and Carl Bernstein. Nonetheless, Buffett did not think the pension scheme at the company was being
run properly.
The letter is addressed Katharine Graham, whose son Don Graham was recently key to the deal where the
newspaper assets of the still-listed company were sold to Amazons Jeff Bezos.
Remarkably, after the recent Bezos deal, it has become clear that although The Washington Post has many
problems the pension fund is not one of them. In fact The Washington Post pension fund has about $1 billion
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more than it needs to pay its obligations, according to the US Fortune magazine.
Buffetts letter to Graham and the board of The Washington Post stands as an essential document for anyone
seeking principles for running a pension fund.
To view Warren Buffetts full 1975 memo to Katharine Graham, click here.
In essence then the letter puts forward five outstanding principles for commencing and managing any pension
fund operations DIY funds could benefit greatly from these instructions.
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Conclusion
The most remarkable thing about reading a Warren Buffett letter from almost 40 years ago is how relevant his
advice remains. As the pension manager of our own funds, his advice on pensions is worth keeping in mind
whether it be about market timing, investment approaches, the importance of thinking about inflation or the
balance between sharemarket or fixed interest investments, it will serve any investor well.
Scott Francis is a personal finance commentator, and previously work ed as an independent financial advisor.
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