by Scott Ronalds,

War­ren Buffett’s per­spec­tives on invest­ing are worth their weight in gold (or bet­ter yet, stocks). Invest in things you under­stand. Wait for the right pitch. Don’t fol­low the herd. Buy things you’d be com­fort­able hold­ing forever.

In a recent arti­cle in For­tune mag­a­zine, Buf­fett lays out his views on what he con­sid­ers the three major cat­e­gories of invest­ment pos­si­bil­i­ties: fixed income (currency-based invest­ments), assets that will never pro­duce any­thing (gold), and pro­duc­tive assets (busi­nesses, farms, real estate).

Not sur­pris­ingly, War­ren thinks that the third cat­e­gory is the place to be: “I believe that over any extended period of time this cat­e­gory of invest­ing [own­er­ship of busi­nesses] will prove to be the run­away win­ner among the three we've exam­ined. More impor­tant, it will be by far the safest.”

He notes, “The risk­i­ness of an invest­ment is not mea­sured by beta (a Wall Street term encom­pass­ing volatil­ity and often used in mea­sur­ing risk) but rather by the prob­a­bil­ity – the rea­soned prob­a­bil­ity – of that invest­ment caus­ing its owner a loss of pur­chas­ing power over his con­tem­plated hold­ing period. Assets can fluc­tu­ate greatly in price and not be risky as long as they are rea­son­ably cer­tain to deliver increased pur­chas­ing power over their hold­ing period.”

Con­sider Buffett’s views on gold. “Today the world's gold stock is about 170,000 met­ric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Pic­ture it fit­ting com­fort­ably within a base­ball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be about $9.6 tril­lion. Call this cube pile A. Let's now cre­ate a pile B cost­ing an equal amount. For that, we could buy all U.S. crop­land (400 mil­lion acres with out­put of about $200 bil­lion annu­ally), plus 16 Exxon Mobils (the world's most prof­itable com­pany, one earn­ing more than $40 bil­lion annu­ally). After these pur­chases, we would have about $1 tril­lion left over for walking-around money (no sense feel­ing strapped after this buy­ing binge). Can you imag­ine an investor with $9.6 tril­lion select­ing pile A over pile B?”

There are lots of other unique per­spec­tives in the arti­cle, which is an adap­ta­tion of his upcom­ing share­holder let­ter. Buf­fett fans may also be inter­ested in watch­ing a 12 minute seg­ment that aired on CBS’s ‘Per­son to Per­son’ last night, in which he takes Char­lie Rose and Lara Logan through his pri­vate office in Omaha.

About Tom Bradley Tom is the President and co-founder of Steadyhand. His education includes a Bachelor of Commerce degree from the University of Manitoba (1979) and an MBA from the Richard Ivey School of Business (1983). Tom has 26 years of experience in the investment industry. He started his career in 1983 as an Equity Analyst at Richardson Greenshields. Tom spent eight years with the firm, the last three as Director of Institutional Sales. In 1991, he joined Phillips, Hager & North as a Research Analyst and Institutional Portfolio Manager. Tom was appointed to the Board of Directors of PH&N in 1996. He took on the role of Chief Operating Officer in 1998, and was appointed President and Chief Executive Officer in 1999, a role that he held until he resigned from the firm in 2005. Tom writes a column every second Saturday in the Globe and Mail. Aside from stocks and (to a lesser extent) bonds, his passions include skiing, golf, music and The Family Guy. Read more from the author/contributor here.

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