Read, Read, Read Is Warren Buffett's Investment Advice

What's the secret of mutlibillionaire Warren Buffett's success as one of the world's most successful investors? And where does he get his investment ideas?

"I just read. I read all day," he told a group of 150 Wharton business school students and Fortune magazine in early April.

As an example, he noted that his investment of $500 million in Petrochina five years ago (which he sold for $4 billion in 2007) was based simply on reading the company's annual report. "All I did was read the annual report," he said.

Index Funds Are a Good Investment for Non-Professional Investors

For those who are not professional investors, Buffett had the following advice. "If they're not going to be an active investor -- and very few should try to do that -- then they should just stay with index funds. Any low-cost index fund. And they should buy it over time. And they should buy it over time. They're not going to be able to pick the right price and the right time. What they want to do is avoid the wrong price and wrong stock. You just make sure you own a piece of American business, and you don't buy all at one time."

Some further advice for investors amid today's economic slowdown and market turmoil: "You don't want investors to think that that what they read today is important in terms of their investment strategy. Their investment strategy should factor in that: (a) if you knew what was going to happen in the economy, you still wouldn't necessarily know what was going to happen in the stock market. And (b), they can't pick stocks that are better than average.

Buffett's Contrarian Viewpoint

"Stocks are a good thing to own over time. There's only two things you can do wrong: You can buy the wrong ones, and you can buy or sell them at the wrong time. And the truth is you never need to sell them, basically. But they could buy a cross-section of American industry, and if a cross-section of American industry doesn't work, certainly trying to pick the little beauties here and there isn't going to work either. Then they just have to worry about getting greedy. You know, I always say you should get greedy when others are fearful and fearful when others are greedy. But that's too much to expect. Of course, you shouldn't get greedy when others get greedy and fearful when others get fearful. At a minimum, try to stay away from that. "

Based on that contrarian thinking, Buffett says that now is the right time to be on the greedy side," because many are so fearful today. "Stocks are a better buy today than they were a year ago. Or three years ago."

I, for one, have little doubt that Buffett will turn out to be correct on this point.

Global Impact of U.S. Slowdown

Economic reports from Asia and Europe released today highlighted the damage a U.S. recession could do to exporting nations, and "raised questions about the extent to which China and other fast-developers can fill the void," according to a news analysis from Reuters.

"Japanese trade data for March illustrated both sides of that story, and business surveys in Europe suggested [that] manufacturers may be heading for a period of weaker global demand, with the euro's strength making it even harder to compete on price."

Japanese exports rose 2.3% in March compared with March 2007, Reuters said, but exports of cars and other goods to the U.S. fell 11%, data from the country's finance ministry showed.
Exports to China and Asia rose broadly, but the rise was the smallest in three years, the ministry said.

The smaller rise in exports "provided little comfort to those who argue or hope that fast-growing emerging-market economies will make up for at least a significant part of lost export demand" from the U.S., Reuters noted.

In Europe, business surveys showed that new manufacturing orders, including export orders, shrank in the euro zone for the first time in three years, Reuters noted. It cited a drop to 50.8 in April from 52.0 in March for the RBC/NTC Eurozone Purchasing Managers Index for the manufacturing sector, its lowest since August 2005, while the gauges for new orders fell below 50, signalling contraction.

However, a similar index for the services sector, which accounts for a larger share of total economic activity in developed economies, registered an acceleration in the pace of activity growth in April, Reuters said.

"The overall softening in economic activity in the euro zone is still very gradual," one economist said.

Polls conducted by Reuters and published on Wednesday showed economists are lowering their growth forecasts and raising their inflation forecasts for most of the world's big industrialised economies.

Continued Drops in Home Sales and Prices Provoke Concern Over a Possible Deep Recession

Every day brings more negative economic news. Today's news that sales of existing houses fell 2% in March, while the median price of a house tumbled 7.7% on the heels of an 8.2% decline in February, provoked further concern that a prospective recession may be quite deep.

In New Haven, Yale University economist Robert Shiller, cautioned that the slump in the housing marketing could cause prices to fall more than they did during the Great Depression of the 1930s, according to a report from the Associated Press. Shiller said that bailouts will be needed to prevent millions of people from losing their homes.

According to the AP, Shiller, a pioneer of the widely-watched S&P/Case-Shiller home price index, said that there's a good chance that housing prices will fall further than the 30% drop that took place during the Depression. Home prices already have fallen 15% since their peak in 2006, he noted.

"Basically, we're in uncharted territory. It seems we have developed a speculative culture about housing that never existed on a national basis before," he told the AP.

Meanwhile, gasoline prices rose above $3.50 a gallon on average for the first time across the country, the AAA said on Monday, as fears about energy suplies and a falling dollar drove prices to new records, The New York Times reported. The report said that gasoline prices have risen by 22% in the past year, and some analysts expect prices close to $4 a gallon, on average, this summer, when demand is at a peak.

When added to the problems being faced by a broad array of financial institutions, it's clear that the economy is likely to decline significantly from here.