I recently reread all the "Shareholder Letters" written by the greatest investor of all time since 1977. They are available for free at:
http://www.berkshirehathaway.com/letters/letters.html
It's hard to find someone who combines such in-depth economic knowledge, unfailing common sense and such a keen sense of humor, even when it comes to laughing at himself.
I have selected my favorite passages so that you can enjoy these timeless thoughts.
The year always refers to that of the general meeting (for example, 2000 corresponds to the letter to shareholders of 2000 for the 1999 financial year).
2013:
You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognize your limitations and follow a certain course to work reasonably well. Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick “no.”
Focus on the future productivity of the asset you are considering. If you don't feel comfortable making a rough estimate of the asset's future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn't necessary; you only need to understand the actions you undertake.
If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
When Charlie and I buy stocks – which we think of as small portions of businesses – our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out, or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings – which is usually the case – we simply move on to other prospects.
In the 54 years we have worked together, we have never foregone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions. It's vital, however, that we recognize the perimeter of our “circle of competence” and stay well inside of it. Even then, we will make some mistakes, both with stocks and businesses. But they will not be the disasters that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.
2016:
Some years, the gains in underlying earning power we achieve will be minor; very occasionally, the cash register will ring loud. Charlie and I have no magic plan to add earnings except to dream big and to be prepared mentally and financially to act fast when opportunities present themselves. Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.
Discover more from dividendes
Subscribe to get the latest posts sent to your email.
Français 
English 
Italiano 
Deutsch 
Español 
Português
Hi Jerome.
You who are a big fan of Warren Buffet and investing, you might change your mind about options after reading this: https://celtinvest.com/warren-buffett-trader-options
Here are some excerpts from the new 2018 shareholder letter (for the 2017 financial year):
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.
**********************
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. Instead, we simply believe that if the businesses of the investees are successful (as we believe most will be) our investments will be successful as well. Sometimes the payoffs to us will be modest; occasionally the cash register will ring loudly. And sometimes I will make expensive mistakes. Overall – and over time – we should get decent results. In America, equity investors have the wind at their back.
**********************
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.
**********************
Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be achieved.
**********************
I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term US bonds. As an investor's investment horizon lengthens, however, a diversified portfolio of US equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensitive multiple of earnings relative to then-prevailing interest rates.
It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio's ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
Magnificent. Those who manage our forced savings in the 2nd pillar should read this.
It is true that our pension funds think far too short term and confuse volatility with risk.
I also recommend reading from page 10. Warren Buffett made a bet in 2007 that ended in 2017 on the evolution of an ETF on the S&P500 vs. hedge funds. Very informative!
http://www.berkshirehathaway.com/letters/2017ltr.pdf
Excellent. Once again. This guy is simple, modest, visionary, pragmatic, imperturbable and devilishly intelligent.
Here's the "best of" from Berkshire Hathaway's latest shareholder letter:
Berkshire will forever remain a financial fortress. 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.
In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.
That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I'm the young one – that prospect is what causes my heart and Charlie's to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)
My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that fate have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.
****************
It would be foolish for us to sell any of our wonderful companies even if no tax would be payable on its sale. Truly good businesses are exceptionally hard to find. Selling any you are lucky enough to own makes no sense at all.
****************
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.
Berkshire, in fact, may be the only company in the Fortune 500 that does not prepare monthly earnings reports or balance sheets.
****************
Over the years, Charlie and I have seen all sorts of bad corporate behavior, both accounting and operational, induced by the desire of management to meet Wall Street expectations. What starts as an “innocent” fudge in order to not disappoint “the Street” – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a “cookie-jar” reserve – can become the first step toward full-fledged fraud. Playing with the numbers “just this once” may well be the CEO's intention; it's rarely the end result. And if it's okay for the boss to cheat a little, it's easy for subordinates to rationalize similar behavior.
At Berkshire, our audience is neither analysts nor commentators: Charlie and I are working for our shareholder-partners. The numbers that flow up to us will be the ones we send on to you.
****************
We use debt sparingly. Many managers, it should be noted, will disagree with this policy, arguing that significant debt juices the returns for equity owners. And these more venturesome CEOs will be right most of the time.
At rare and unpredictable intervals, however, credit vanishes and debt becomes financially fatal. A Russian-roulette equation – usually win, occasionally die – may make financial sense for someone who gets a piece of a company's upside but does not share in its downside. But that strategy would be madness for Berkshire. Rational people don't risk what they have and need for what they don't have and don't need.
Holy Warren. I have to say that this guy leaves me in awe of his career, his stock market performance, but also his intelligence, his personality and his simplicity in the noble sense of the term.
He has remained true to his principles throughout his life and his results prove him right.
I like this approach of behaving like a real investor, almost going so far as to become more or less the boss of the company.
It must be exhilarating to take charge of a company even though you've never worked there before...
That being said, it is clear that this recipe is difficult to apply to all of us.
We don't have the same financial means and not the same sources of information (but that was also the case for Warren at the beginning).
Above all, for retirees or future retirees, investing their money in only a handful of companies can prove risky.
We need a solid income. If we concentrate our assets in a very small number of companies and one of them fails, it is our standard of living that can be seriously impacted.
I consider Warren a guide, a kind of prophet. I follow some of his ideas and adapt the rest according to my own reality.
I'm also a big fan of the guy and the strategy. Luckily you don't need to get such exceptional results as him to become a rentier!
When the stock market is going crazy, there's nothing like reading Warren Buffet's latest letter to shareholders! Here are two excerpts:
“We constantly seek to buy new businesses that meet three criteria. First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price. »
“Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of The American Tailwind, about which I wrote last year, and the compounding wonders described by Mr. Smith, will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware! »
The American Tailwind is taking on water right now
We have to look on the bright side... This is weighing down Trump's record and jeopardizing his re-election.