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3 investing lessons from Omaha

By Sheyna Steiner ·
Friday, May 10, 2013
Posted: 10 am ET

I went to Omaha, Neb. last week for the 10th annual Value Investors Conference. It took place over the two days preceding the annual meeting for Berkshire Hathaway shareholders. As you can imagine, it was chockablock full of smart investors, and the speakers were well-known, successful money managers. I learned a lot at the conference, but I got the most important lesson at the rental car counter.

It was cold in Nebraska last week -- snow-on-the-ground cold. I live in Florida. I've never been to Omaha and was already filled with trepidation about getting around in an unfamiliar place. Naturally, the very friendly worker at the rental car place recommended I upgrade to an SUV to deal with the "icy conditions."

Long story short, I learned an expensive lesson: Never blindly trust anyone who stands to gain from your decision. And never make a decision out of fear.

The conference offered more nuanced, but still important, lessons.

Start with management

For instance, I got a chance to interview one of the speakers, Michael Shearn, founder of Time Value of Money, a private investment firm. He's also the author of "The Investment Checklist," a book that lays out the information investors need to make decisions -- and where to find that information. According to Shearn, before diving into numbers and ratios, investors would do well to look into a company's management first.

"We start with the people, looking at the proxy statement, for instance. And looking at the history of how the CEO rose in the company. Are they product-focused or sales-focused, for instance, or have they spent a lot of time in the executive suite," he says.

And the compensation differential between the chief executive officer and the next executive down the line can be telling. If the CEO is earning 10 times that of the next officer, it can indicate an autocracy rather than a team culture.

Similarly, the length of a CEO's tenure before he or she starts making sweeping changes is something to look at. Case in point: Ron Johnson's changes during his brief one-year stint at J.C. Penney, which resulted in steep losses.

When someone charges in and starts changing everything, "They haven't taken the time to understand the customers or the employees," says Shearn.

Do what is hard

Avoiding the error of following the herd was a major theme. Howard Marks, founder and chairman of Oaktree Capital Management and author of "The Most Important Thing: Uncommon Sense for the Thoughtful Investor," put it best by saying:

You have to sell when people think things are only going to get better and buy when things are falling apart and people think things will never get better.

Easy to say, hard to do, particularly with the Dow Jones Industrial Average closing above 15,000 Thursday for only the second time ever. Wednesday was the first time.

What do you do when the market goes up?

Follow me on Twitter: @SheynaSteiner.

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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