Fool's school

Buffett's message

Early last month around 40,000 Berkshire Hathaway shareholders flocked to Omaha to listen to Chairman Warren Buffett and his partner, Charlie Munger, answer their questions for five hours.

Here are some snippets from the annual meeting and the subsequent news conference (the quotes are paraphrased):

On dumb investments: "We steer clear of companies where we don't have a reasonable idea about how the industry will develop within five to 10 years. Consider Apple and Google: Both are extraordinary companies. They may well be worth a lot more 10 years from now, but we would not want to own them — or bet against them."

"If a company's price is crazy, even if we do understand it, then that's out, as well. We avoid new issues (IPOs), too, as there are usually plenty of better alternatives.

Then there are industries that we think could potentially do very well, but we have no idea who the clear winners will be in the next few years."

On barriers to entry, a competitive advantage: "We tend to buy barriers instead of building them.

"If you gave me $30 billion and told me to try to knock off Coca-Cola, I wouldn't have the faintest idea how to do it. And nobody is going to build another railroad. One competitor can be enough to ruin a business. If you're in an industry with no barriers, you have to move really fast and always stay ahead."

You can read Buffett's educational letters to shareholders at www.berkshirehathaway.com.

My dumbest investment

A solar burn

Dear Fool: I was still relatively new to the investment game and, being a sustainable-energy supporter, I fell for Pacific Blue Energy's talk about solar-panel farms.

Literally the day I invested, the stock price started falling. Blind faith that things would turn around sooner or later proved very blind. I ended up losing around $10,000.

The Fool responds: First of all, be careful when you refer to investing as a game.

It's easy to think of investing as gambling, but you're doing much more than just speculating if you're investing in healthy, established, growing companies with proven track records and competitive advantages.

Unfortunately, Pacific Blue has mostly been a penny stock. Penny stocks, often hyped and manipulated, are best avoided.

Many have high expectations for solar energy, but it's not booming quite yet, partly due to supply-and-demand issues. With all stocks, buy on strength, not rumors, promises or possibilities.

The Motley Fool take

Whole Foods on a roll

Whole Foods Market (Nasdaq: WFM) recently posted strong quarterly results, with gross profit margins hitting a record 36.3 percent. That number might slip a bit in future quarters, though.

Despite the recession, Whole Foods has managed to adjust its pricing to compete admirably in a tough marketplace.

In the last two fiscal years, it increased its sales by 12 percent each year, and sales at stores open more than a year increased by 7.1 percent and 8.5 percent.

Speaking of gross margin, Whole Foods is a gem in the industry. Its best-performing peers are lucky to approach 30 percent.

Is the stock a buy now? Well, given its tremendous run over the past year, potential investors might want to wait a bit to see if some temporary bearishness might produce a lower price for purchase.

Still, over the long haul, Whole Foods has been worth its historical premium.