Warren Buffett Investment Recommendations?

In his latest annual letter to Berkshire Hathaway shareholders, Warren Buffett provided an honest admission of where the fortune he was leaving to his wife would go: “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers.”

Of course, this advice contradicts everything Mr. Buffett has done to become one of the richest persons on earth. Anyone can get average returns by investing in an index fund. Lakeside Virtual Family Office (LVFO) seeks to earn above-average Return on Invested Capital (ROIC). One of the keys to earning above-average ROIC is to avoid being predictably irrational. Behavioral Economics has concluded that most individuals earn a below-average ROIC because they do the wrong things at the wrong time.

For example, individuals tend to buy high and sell low. In addition, Mr. Buffett and his team at Berkshire Hathaway consistently make errors in selection and timing, according to John Bogel, Founder of the Vanguard Family of Funds. American Funds did a study on their fund’s performance with a buy and hold strategy vs. actual investors who inevitably bought high and sold low. The difference between the two is alarming. American Funds found that the funds, if left alone, earned a double-digit ROR over the Long-Term. On the contrary, individual investors in these same funds could not help but buy high and sell low. American Funds concluded that individual’s ROIC was negative while the funds were positive because of predictable irrationality.

LVFO has consistently earned an above-average ROIC and owe it equally to subjective and objective disciplines. LVFO is a firm that is not easily swayed by “predictable irrational behavior” and remains committed to seeking an above-average ROIC to meet the life needs of its clients to prevent high-net-worth families from becoming average investors and losing their fortune within three generations.