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Is Long-Term Investing Obsolete?

No, says Warren Buffett in an interview with the author of a new book on value investing

Q. What lessons should investors learn from the financial meltdown of 2007-2008?

A. They are age-old lessons; they aren't new lessons. They are things we all knew that many people forgot when they were euphoric. Leverage was rampant. Just about the only way a smart person can go broke is to borrow money. There is nothing more fun than leverage on the way up, nothing more deadly than leverage on the way down. If you're smart, you don't need debt, and if you're not, you shouldn't use it.

Q. Is long-term investing obsolete?

A. No. If you owned a group of good companies a few years ago, you were fine years ago and you're fine now. Don't let your investment decisions be ruined by the collective errors of others.

Q. Many investors are turning to gold as a safe haven. What do you think of that strategy?

A. Gold is not an investment; it is a refuge and will be less important over time. You can say gold is an asset like art is, but something that doesn't produce anything is not an investment. Stamps are assets. A farm is an investment. You can speculate in an asset class if you want to, but you're only betting against others. As long as the next guy wants to buy it, it's fine.

Q. What is the safest, simplest and lowest-cost way to invest in stocks?

A. An index fund is what I recommend for people generally. If you want to own in the oil industry, for example, there is an exchange-traded fund that makes it easy for you to do it. I wouldn't do that myself, but the small investor should buy index funds over time. It is a low-cost way of being in the market over time, especially if you don't want to do the work of managing investments. This way you avoid the wrong time to pick stocks. The big danger [for investors] is doing the wrong thing; if you don't do the wrong thing, you will do something reasonably right.

Q. What is the best investment advice we can give our children and grandchildren?

A. Invest in yourself, your education and your earning capability so that you will be able to claim your share of the national economic pie, regardless of inflation. Your money can be inflated away but your talent cannot.

Janet Lowe is the author of the book The Triumph of Value Investing: Smart-Money Tactics for the Postrecession Era.

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