Money

Warren Buffett auctioned off a stock tip in 1999—here's how it fared

Few people can say they've received stock advice straight from legendary investor Warren Buffett himself. But back in 1999, Buffett sold his 20-year-old wallet to the highest bidder for $210,000, with all proceeds going to Girls Inc., a charity that supports young girls in Omaha.

To sweeten the deal, he included the name of a "winning" stock inside the billfold, the Wall Street Journal reports.

The wallet's enterprising new owner, John Morgan, had an idea to raise even more money for the charity. He spread word that he'd reveal Buffett's advice for $1,000 a pop. It worked: About 30 people ponied up a grand each to hear Buffett's pick.

Warren Buffett, chairman and CEO of Berkshire Hathaway
CNBC | Getty Images
Warren Buffett, chairman and CEO of Berkshire Hathaway

The company: First Industrial Realty Trust, a real estate investment trust that owns warehouses and distribution facilities across the U.S. Real estate investment trusts, otherwise known as REITs, provide investors with a liquid stake in real estate and typically offer high dividends. They are similar to mutual funds but invest in properties such as office buildings or shopping centers.

So was Buffett's pick a winner? Kind of. At the time of the announcement, the WSJ explained that "the news promises to boost First Industrial," but added that "nearly anything the famed 'sage of Omaha' buys typically jumps in price after it has been disclosed."

Looking at CNBC's historical stock price data for the period between October 1999 and February 2000, it seems the Journal was right: First Industrial Realty Trust did indeed see a bump.

But more importantly, how did it fare long-term? Settling in to wait for the long haul is, after all, one of Buffett's core investing principles.

Historical data shows the stock climbed steadily between late 1999 and 2007. However, it took a nosedive in 2008, crashing with the rest of the market as the financial crisis hit. As the country recovered, so did First Industrial Realty Trust. It showed steady growth from 2009 onward.

Since 1999, First Industrial Realty Trust's stock is up 11 percent, while the S&P 500 is up 67 percent over the period between December 1999 and August 30, 2017.

Although Buffett's pick fared reasonably well overall, the adventure goes to show that no one is safe from extreme downturns in the market.

Following stock tips, even from the most brilliant investors, is always a risk. Especially if you're just starting out, sticking to safer options, such as index funds, is usually a better bet. Buffett himself is a fan of that strategy.

"Consistently buy an S&P 500 low-cost index fund," Buffett once told CNBC's On The Money. "I think it's the thing that makes the most sense practically all of the time."

Index funds hold every stock in an index such as the S&P 500, including big-name companies such as Apple, Microsoft and Google, and offer low turnover rates, so their fees and tax bills tend to be low as well.

Because this type of fund ebbs and flows with the market, it stays relatively constant and avoids the risk that comes with picking individual stocks.

"The trick is not to pick the right company," Buffett told On The Money. "The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low cost way."

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