Buffett biographer: Don't invest in 'stuff'

Nov 11, 2012 @ 12:01 am

By Liz Skinner

Investors should look for companies focused on risk management and digital assets, while shorting “stuff” and services, according to Alice Schroeder, a former Wall Street analyst who is working on a second book about superinvestor Warren E. Buffett.

“One of the great growth industries is risk management,” she told the audience at an Eastern regional meeting of the National Association of Personal Financial Advisors in Baltimore last Wednesday. “The sophistication of how we handle risk is growing.”

Businesses focused on risk management include insurance companies, as well as outfits such as staffing companies that help a business protect against the obligations that come from full-time employees, Ms. Schroeder said.

In the long term, focus investments on all things digital, not hard assets, because younger generations aren't interested in collecting objects such as Hummel figurines and other knickknacks, or even on having a big house full of antiques, she said. Instead, they collect digital assets such as photos, applications and games.

“The generations coming up behind us, anyone under 35, they don't want stuff,” she said. “Grandma's china is going to China.”

Ms. Schroeder also recommends shorting service businesses, pointing to the legal profession as an example “where the business model has collapsed.”

She predicts that “artisans” and experts will still succeed in service businesses, noting that financial advisers who “offer a high level of expertise” are well-positioned for the future.

One insight that Ms. Schroeder said she gleaned in researching her biography on Mr. Buffett, “The Snowball: Warren Buffett and the Business of Life” (Random House, 2008), is to know where the economy is going but to position investments so that it doesn't matter what happens.

“Put the odds in your favor so you don't have to worry about the economy,” she said.

Her next book will focus on Mr. Buffett's process for evaluating investments, Ms. Schroeder said.

lskinner@investmentnews.com Twitter: @skinnerliz

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