Every year, the one document every investor should read, even if they read nothing else the rest of the year is – Warren Buffett’s annual shareholder letter. This letter contains lessons that have vaulted Warren Buffett from a simple guy starting out working in his family’s grocery store to a revered billionaire whose investment style has often been copied but has rarely produced the returns he continues to generate year after year.
Here a few nuggets from this years’ shareholder letter that was released earlier this week.
- Focus on the Forest – Forget the Trees. “A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty”.
- “In managing, I will make expensive mistakes of commission and will also miss many opportunities, some of which should have been obvious to me. At times, our stock will tumble as investors flee from equities. But I will never risk getting caught short of cash.”
- “For 54 years, our managerial decisions at Berkshire have been made from the viewpoint of the shareholders who are staying, not those who are leaving. Consequently, Charlie and I have never focused on current-quarter results.”
- “On March 11th, 2019, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75, I had begun accumulating at age six.”
- “To “protect” yourself, you might have eschewed stocks and opted instead to buy 31⁄4 ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple investment in American business. “
Future Wealth’s View
Most of what Warren Buffett says is common sense but common sense is often a rare commodity when it comes to investments. People often fret when one of their investments has gone bad and miss the forest for the trees. (Buffett’s point 1). Likewise, when the market begins to sell off, most investors go into panic mode. If they were holding a good cash position, a downturn may be a good opportunity to put new money to work. (Buffett’s point 2). Going long term and staying long term (Buffett’s point 3 and 4) are likely the most important takeaways. Return from alternatives to the stock market are dismal (Buffett’s point 5).
Buffett’s right hand man – Charlie Munger has a few quotes of his own, not related to investments, but serve as keys to longevity and happiness. Here are his 5 quotes:
“You don’t have a lot of envy.”
“You don’t have a lot of resentment.”
“You don’t overspend your income.”
“You stay cheerful in spite of your troubles.”
“You deal with reliable people.”
Buffett is 88 years old and Munger is 95 years old – They don’t make them like they used to anymore.