While my personal approach to the markets is primarily focused on cycles analysis and transaction timing, i.e. “trading”, I also recognize the importance of longer-term market perspectives (“investing”) in reaching specific financial objectives. And when it comes to investing, no one can match the experience and acumen of Warren Buffett, the Chairman of the Board at Berkshire Hathaway Inc.
For the past half-century, Buffett has issued an annual letter to the company’s shareholders, reviewing the year’s financial results and sharing his homespun wisdom. Releases of Buffett’s letters are much-anticipated events.
Here are a few excerpts from Warren Buffett’s latest letter to Berkshire shareholders, which was released yesterday, on February 24, 2018:
Brains and Capital
“This is a business in which there are no trade secrets, patents, or locational advantages. What counts are brains and capital.”
“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.”
Mob Fears and Enthusiasms
“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 attained.”
“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.”