Warren Buffett is a role model for share investors around the world.

This week the annual general meeting in Omaha of Berkshire Hathaway - Woodstock for capitalists as it has been dubbed - reportedly was a little more subdued than normal. Hardly surprising given that Buffett's genius did not mean the company's value escaped unscathed from the global financial crisis.

But as always there was something average investors (and advisers) can learn from the Buffett approach to investing.

There seemed to be two simple messages from the Berkshire Hathaway chairman.

The first was setting realistic expectations for future returns.

The second and arguably more useful tip particularly for those people running a self-managed super fund was what to measure performance success by.

Self-managed super funds typically hold quite a range of investments - direct shares, term deposits, cash, managed funds and property to list the main asset classes.

So how do you judge the performance of your portfolio - specifically the sharemarket component?

Buffett says that Berkshire Hathaway investors ought to be comfortable with a return 2% above the broad US market index the S&P500. Given that Berkshire Hathaway investors are used to a fair bit more than that you can imagine that may not have been highlight of the investment talkfest.

But for mere mortals it sounds like a reasonable measure to judge how the actively managed sharemarket portion of your portfolio is performing.

Given the higher costs of active investment 2% above a broad sharemarket index - in an Australian context that is the S&P/ASX 300 - after fees is a good achievement.

Honestly assessing how the various parts of your portfolio are performing is a great discipline for investors to have - and one of the real values that having an adviser who is both dispassionate and having different sources of research knowledge can add to your strategic financial plan.

Benchmarking your portfolio is something that large institutional investors do as a matter of course but there is another aspect to reviewing how your portfolio is set up.

Diversification is a well-tested approach to lowering risk. But it only works if the assets in the portfolio have low correlations - that is you do not want everything going up at the same time because chances are they will fall in lockstep as well.

This was one of the tough lessons for investors in so-called hybrid fixed interest investments. People thought - and were sold - these investments on the basis of a higher yield but with the defensive characteristics of fixed interest. When the global financial crisis really hit the fallacy was exposed - instead of acting like fixed interest investment these financially engineered products performed just like equities - that is badly.

So a portfolio that may have looked quite reasonable at a high level with a solid component in fixed interest-like investments suddenly was exposed because its performance closely followed - or was tightly correlated - to the sharemarket.
So drilling down into your portfolio to understand the correlation between investments can help on two levels - from a risk perspective and also from understanding the costs.

With the case of active funds management the question is simple - are you getting what you are paying for?

For example when you look at some of the largest share funds in Australia their performance correlates very closely with the index return over five years to the end of December 2008.

That raises the simple question: when you pay higher fees for active management are you getting active management?

As a proponent of a core and satellite approach to investing - index the core to lock in market returns, diversification and lower costs and then take active positions where you feel there is the potential for outperformance. But a bad result for investors is if they pay high active fees and only receive market return. That would certainly fail Warren Buffett's test for successful investing.