HOW TO INVEST LIKE WARREN BUFFETT

WHAT WOULD WARREN DO? AND WHAT WOULDN'T HE DO? WE BREAK DOWN FIVE INVESTING LESSONS FROM THE GOAT.

- BY GEOFF COLVIN

HISTORY'S GREATEST master class on investing is about to shut down.

On Dec. 31, Warren Buffett will hand over the Berkshire Hathaway CEO job to vice chairman Greg Abel. Now, as Buffett's 60 years of running Berkshire come to an end, it's time to assess his performance.

Brace yourself.

If you had put $1,000 into the S&P 500 index at the beginning of those 60 years, you'd now have $441,196—a tremendous reward for doing nothing. But if you had put your $1,000 into Berkshire stock, you would now have a truly incredible $59,681,063. Another way to think of it: If you had invested $20,000 back then, you would today be a billionaire. Without doing a thing.

As astonishing as the numbers are, another facet of Buffett's career is at least as remarkable. Through it all, he has happily, exuberantly told the world exactly how he does it. He holds no investing secrets. In speeches, interviews, and his annual letters to Berkshire shareholders, he has explained what he looks for, what he ignores, and how he thinks. Buffett bought his first stock (Cities Service Preferred, the oil and gas company known today as Citgo) when he was 11 years old, and he will retire at age 95. So here we offer 84 years of investment wisdom, condensed and explained—Buffett’s five top rules of investing:

RULE NO. 1: DON'T EVEN TRY TO PICK STOCKS LIKE BUFFETT. STICK WITH AN S&P 500 INDEX FUND PLUS SOME SHORT-TERM TREASURIES.

BUFFETT HAS INSISTED for decades it's the best way for average investors to invest. Few can spend many hours a week analyzing stocks. Buying managed mutual funds in which professionals choose stocks may seem a good alternative, but it isn’t. Research has long found that over 10-year spans, most managed funds underperform the market. A few managed funds still outperform the market over the long run, but they aren't the same funds from decade to decade, and identifying the few winners in advance has proved impossible.