NEW YORK (CNN/Money) - Renowned investor Warren Buffett, CEO of Berkshire Hathaway, released his annual letter to shareholders letter on Saturday, along with the company's annual report.

Many value-conscious, long-term growth investors eagerly await Buffett's letter each year, because it includes frank talk about the market outlook from one of the richest and most successful investors in the United States.

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In last year's letter, Buffett was mildly negative about the stock market, and he struck a similar position this year.

It's certainly worth considering the issues Buffett raises in his letters. But it's equally important to examine his ongoing portfolio and the investing decisions he makes.

If you do, you'll find that even when Buffett is pessimistic, he hangs on with a value-conscious growth investment approach -- maintaining a portfolio that's very much in line with the investing principles I recommend, based on stocks such as those in the Sivy 70.

Last year, Buffett identified two broad areas of concern. The first is poor corporate oversight, particularly by boards of directors.

Berkshire's largest holdings The largest stock holdings as of the 2002 annual report. Company (ticker)  2004 P/E  Long-term growth  American Express (AXP)  20.3 13%  Coca-Cola (KO)  23.3  10%  Gillette (G)  26.0  11%  H&R Block (HRB)  14.1  15%  M&T Bank (MTB)  16.1  10%  Moody's Corp. (MCO)  25.5  15%  Washington Post (WPO)  26.8  13%  Wells Fargo (WFC)  14.1  12%   Sources:  Berkshire Hathaway 2002 annual report; Thomson/Baseline

The concern is legitimate and has understandably increased amid the scandals of the past few years. In fact, Buffett raised the concern again this year.

But the very fact that the concern is greater means that risks are more fully reflected in stock prices today than they were four years ago.

In any event, the best defense against such problems is to focus on companies with a well-established reputation for probity and results that are good, but not implausibly good. Stocks with long histories of compound annual earnings growth in the 12 percent to 16 percent range, along with solid balance sheets, tend to be the safest choice. (For more, see my column from Tuesday, "Earnings you can trust.")

Buffett's second point last year was that stocks were still overvalued. "Despite three years of falling prices, which have significantly improved the attractiveness of common stocks, we still find very few that even mildly interest us," he wrote.

In retrospect, it's obvious that Buffett was wrong -- at least from a short-term perspective. Less than two months after he posted his last letter, stocks began the recovery that has boosted them more than 40 percent from rock-bottom lows.

If Buffett is at all consistent, he would be even more negative on stock valuations, arguing that prices have run up too rapidly despite an outlook that is still rather mixed.

I'm a lot more optimistic.

My reasoning is quite simple: The recession was actually rather mild, and the economic outlook is bright. The bear market was brutal simply because valuations had reached insane peaks during the previous market boom. Most of this excessive valuation was corrected by the bear market. And valuations deserve to be somewhat higher than the historical averages because inflation and interest rates are so low.

Most important, after a severe bear market, there's almost always a bull market that lasts at least twice as long as the current upturn has -- and lifts share prices at least twice as far as they've risen to date.

I expect these trends to continue until one of the following three things happens: the economy stops improving; inflation picks up to more than 3 percent (it's only 1.9 percent over the past 12 months); or interest rates rise more than a full percentage point from current levels.

In fact, there's endless room to debate the impact of economic trends. But ultimately, what matters is how your portfolio actually performs.

Take a look at Buffett's own holdings in the table above. The stocks shown are what he owned last year but with updated numbers. We won't know his exact current holdings until this year's letter is released.

These stocks are mostly growth issues. Buffett doesn't turn over his portfolio quickly, as a matter of principle as well as for tax reasons. But his largest holdings have a 12.4 percent projected compound annual earnings growth rate over the next five years and trade at an average P/E just over 20.

In addition to these eight large stakes, Buffett has some smaller holdings. Berkshire Hathaway also owns some businesses outright, particularly in the insurance field. These wholly owned subsidiaries are hard to value. But in general they have similar growth propects but lower effective P/Es than his stock positions.

On balance, then, Buffett maintains a portfolio with market-beating total return potential -- earnings growth in excess of 12 percent, plus some dividends. And the effective P/E of all his businesses probably averages out somewhere in the high teens.

That's pretty much in line with the parameters I advocate, based on my list of 70 stocks.

However negative Buffett may sound in the letter on Saturday morning (CNN/Money has full coverage), the best idea is to pay attention to what he does, not what he says.

His current stock holdings, as well as the transactions he has made over the past 12 months, reaffirm the value of a long-term, value-conscious portfolio of growth stocks.

On that, we all agree.

Michael Sivy is an editor-at-large for MONEY magazine. Sign up for free e-mail delivery every Tuesday and Thursday of Sivy on Stocks.