The Best Investment Advice I Ever Received

Excerpted from
The Best Investment Advice I Ever Received: Priceless Wisdom from Warren Buffett, Jim Cramer, Suze Orman, Steve Forbes, and Dozens of Other Top Financial Experts
By Liz Claman

Stanley M. Bergman
Chairman and Chief Executive Officer, Henry Schein, Inc.

As the Chairman and Chief Executive Officer of a successful Fortune 500 company, it is understandable that people might assume that I personally know a great deal about making good investments. But what I have learned in my career is the wisdom of seeking out a team of expert advisors covering every facet of business-from marketing to finance to logistics-weighing their guidance, and usually taking their advice. Proof of the effectiveness of this approach is best seen in the growth of Henry Schein. Inc.

I use this same approach when making investments-I engage professional advisors with a proven track record of success to find the answers to meet my investment goals, and I listen to their counsel.

Looking back at the advice I have received over the years, I've identified three characteristics that successful companies seem to share:

First, invest in companies that are in good markets. A company is only as healthy as the markets it serves, and there should be numerous opportunities for future growth. Study the demographic trends that might drive growth, such as an aging population or an increase in discretionary income. And be sure the company is well balanced in its offerings to better weather temporary downturns in one or more market segments.

Second, invest in companies that have a great culture, great people, and great values. Of a company's many assets, the most important is its people-the values they live by and the culture they create together. Listen to what a company says about its people and what the employees say about the company. Read their guidelines for how they conduct business to sec if they "walk the talk." Look for companies that include a cohesive team working toward a clear and common mission rather than a collection of individuals with diverse goals.

Third, invest in companies that are constantly reinventing themselves. Markets are changing faster today than at any previous time in history. We live in an era of instantaneous worldwide communications and a global market that never closes. New opportunities are emerging at record rates, and some long-established areas of profit are becoming obsolete. The companies that will be tomorrow's market leaders are those that constantly turn a critical eye inward and reinvent themselves to better serve evolving or emerging markets.

These three attributes are the foundation for a good long-term investment strategy.

Scott Black
Founder and President, Delphi Management, Inc.

During the summer of 1966, I was living in Maine. I did not know much about investing so my mother sent me into H. C. Wainwright, which was a research boutique. She knew a broker there named Robert Lipkin. I did not have much money then, so Lipkin gave me my first piece of investment advice. He said the smart thing to do was to buy a mutual fund. The market had previously been killed that summer under Lyndon Johnson, but I was lucky because I had bought one of the Fidelity Trend Funds, which had a good record. In the fall of 1969,I went to Harvard Business School and sold the fund, which turned out to be dumb luck because the market got killed the following spring.

One of my classmates at Harvard, Robert Goldfarb, gave me some great investment advice. After school, we both got jobs in New York. I went to work for Xerox and Bob went to work for Bill Ruane, who was Warren Buffett's best friend. That was when I was introduced to value investing. Warren Buffett-style. Bob explained to me that the key is to look for companies with a high return on equity and a low price/earnings ratio.

Before he became really well known, I was reading all of Warren Buffett's books and calling myself a Warren Buffett disciple. The key to Warren's philosophy is return on equity. You want to buy a good business. A good business is defined as one that generates a high return on equity with strong, free cash flow. I refined the criteria over time, but that basic principle still forms the nucleus of what we do at Delphi.

A big mistake people frequently make is trying to time the market. If you look at the rates of return throughout the twentieth century there is a clear message for individual investors-don't do it. Attempting to time the market is a mistake. You should have most of your money in equities, especially when you are younger, because this enables you to participate in the growth of the U.S. economy. The bottom line is that if you believe in the continued growth of the economy, which is a fairly good assumption, then you should be in equities. If you are holding excess cash and trying to time the market, you don't have faith in the long-term economy. Remember that compounding works in your favor over time. If you want to build wealth, you should definitely be in equities.