Editor's Comment: American business magnate, investor and philanthropist Warren Buffett recently published his Annual Letter to the shareholders of Berkshire Hathaway, Buffet’s multinational conglomerate-holding company headquartered in Omaha, United States. These letters, which have now been written for more than 50 years are closely scrutinized by analysts and investment professionals for priceless musings on investing, business and economy. In this year’s edition released on the 24th of February, Warren Buffett focused on the conglomerate’s future plans, investments, and troubles with accounting, while giving out invaluable investment advice.
In a world where investors are drowning in information but starving for wisdom, we are incredibly lucky to receive an annual doze of distilled investing wisdom straight from one of the greatest masters of the craft, that too for free!
They say the greatest education is watching the masters at work. One such master piece comes in the form of Warren Buffett’s Annual Letter to shareholders. I honestly believe there is much more wisdom packed in those 20 odd pages than that can be found in many books put together.
I poured over Buffett’s latest Annual Letter, and here are 10 nuggets of wisdom I could find. I have made no attempt to comment on these gems as that would be a futile exercise. The risk of diluting such distilled wisdom does not elude me.
So sit back, read these gems slowly, pause and reflect on each one of them. Hope you find them as useful as I found them to be.
In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business;opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.
Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.
The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.
Betting on people can sometimes be more certain than betting on physical assets.
Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts or the opinions of media pundits.
There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.
Performance comes, performance goes. Fees never falter.
Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta.
What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.
Stick with big, “easy” decisions and eschew activity
Knowledge comes from learning, wisdom comes from living. Let us strive to apply this investing knowledge.
Originally Published in Stock and Ladder