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The Elements of Investing by Charles D. Ellis, Burton G. Malkiel

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Chapter 4. AVOID BLUNDERS

You, far more than the market or the economy, are the most important factor in your long-term investment success.

We're both in our seventies. So is America's favorite investor, Warren Buffett. The main difference between his spectacular results and our good results is not the economy and not the market, but the man from Omaha. He is simply a better investor than just about any other investor in the world, amateur or professional. Brilliant, consistently rational, and blessed with a superb mind for business, he concentrates more time and effort on being a better investor and is more disciplined.

One of the major reasons for Buffett's success is that he has managed to avoid the major mistakes that have crushed so many portfolios. Let's look at two examples. In early 2000, many observers declared that Buffett had somehow lost his touch. His Berkshire Hathaway portfolio had underperformed the popular high-tech funds that enjoyed spectacular returns by loading up on stocks of technology companies and Internet start-ups. Buffett avoided all tech stocks. He told his investors that he refused to invest in any company whose business he did not fully understand—and he didn't claim to understand the complicated, fast-changing technology business—or where he could not figure out how the business model would sustain a growing stream of earnings. Some said he was passé, a fuddy-duddy. Buffett had the last laugh when Internet-related stocks came crashing back to earth. ...

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