Investing gems from Warren Buffett
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Highlights from a press conference

• Index funds are appropriate for inexperienced investors. In response to a question about why Buffett recommends index funds to investors, he said that for "a know-nothing investor, a low-cost index fund will beat professionally managed money." He also said he had a standing offer to anyone who could name 10 hedge funds that will beat a low-cost index fund. No one has taken him up on his offer.

Asked later why he didn't take his own advice on index funds, he said he thought Berkshire could beat the S&P by a couple of percentage points, "just not a whole lot better."

• The federal estate tax is a keeper. Buffett, a supporter of the federal estate tax, was asked whether he thinks it will fairly tax heirs who inherit estates worth just above $1 million, the threshold that will take effect after 2011 unless lawmakers pass new legislation. He countered that taxes are always unfair to someone and he'd like to know what would be a better way to raise $30 billion per year for the common good. He said that of the 2 million Americans that died last year, less than 2 percent of their estates, or 40,000, qualified for the tax. Buffett also noted that the average inheritance of people who had to pay the estate tax last year was $40 million or more and these people were not hurt by the tax.

When Munger asked him if he would support raising the threshold to $2 million, Buffett said he "didn't have a problem with the structure of it" but would support a progressive tax. He went on to say that he didn't believe in a "lucky sperm club" and that the estate tax helps redistribute some of that wealth. "Other than that, I have no opinion," he said.

Investing advice from Warren Buffett

• Better to invest in businesses tough for competitors to enter. Asked about his interest in investing in Taiwanese high-tech companies, Buffett remarked that "change is wonderful, but not necessarily for investments." In terms of predicting how a business will perform, he said it's much easier to look at consumer behavior and businesses that have big barriers to entry, citing Gillette as an example of a company with a 70 percent market share for men's razors. • How important is return on capital? Buffet said the return on capital employed determines whether a company is good or bad. He also said it's better when you can produce the same returns as you increase the amount of capital employed. "We really love to see a business with increasing returns on capital employed that can use incremental capital and earn at that same rate. Such businesses are practically nonexistent." • Value investing -- what else is there? One person asked about whether Buffett's value investing strategy would apply in South Korea. Buffett said investing is all about value. "What other kind of investing is there?" he asked. "Are we going to have nonvalue investing? Are we going to have tipster investing … dream investing? I've never understood what the alternative is." • The tax code favors the superrich. In response to a question about excess liquidity, Buffett said the U.S. government has imposed comparatively low tax rates on investors making money through capital gains and dividends. "We have become the favored class," he said. "Apparently Washington has decided we are an endangered species."

As for excess liquidity, he warned that "we can easily have an event that changes everyone's perspective in a hurry. And we will have such an event."