Dear Investor For the true and hard core investor, there is an annual event that he most looks forward too. And that is none other than the letter that legendary investor Warren Buffett sends to his shareholders. These annual letters are a minefield of information on value investing that more than matches any books specifically written on the subject. In an excerpt from this forthcoming shareholder letter published on CNN Money, Warren Buffett shares his thoughts on investing Source: finance.fortune.cnn/2014/02/24/warren-buffett-berkshire-letter/ Copy of excerpt is attached as a word file, however I am reproducing hereunder some of the important points of this letter. Do read an attached file. As an Investor it is very essential that you implement most of this in real life Investment is most intelligent when it is most businesslike. Benjamin Graham, The Intelligent Investor It is fitting to have a Ben Graham quote open this essay because I owe so much of what I know Certain fundamentals of investing: • You dont need to be an expert in order to achieve satisfactory investment returns. Keep things simple and dont swing for the fences. When promised quick profits, respond with a quick no. • If you dont feel comfortable making a rough estimate of the assets future earnings, just forget it and move on. • 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. And the fact that a given asset has appreciated in the recent past is never a reason to buy it. • Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays. • Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. Stocks provide you minute-to-minute valuations for your holdings, whereas I have yet to see a quotation for either my farm or the New York real estate Owners of stocks, however, too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits -- and, worse yet, important to consider acting upon their comments. When they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of Dont just sit there -- do something. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy. During the extraordinary financial panic that occurred late in 2008 - if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. True, any one of them might eventually disappoint, but as a group they were certain to do well. When Charlie Munger and I buy stocks -- our analysis is very similar to that which we use in buying entire businesses. In the 54 years we have worked together, we have never forgone 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 In the 20th century, the Dow Jones industrial index advanced from 66 to 11,497. The 21st century will witness further gains, almost certain to be substantial. Investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions Ive laid out in my will. My advice to the trustee could not be more simple: • Put 10% of the cash in short-term government bonds and • 90% in a very low-cost S&P 500 index fund. I learned most of the thoughts in this investment discussion from Bens book The Intelligent Investor
Posted on: Fri, 28 Feb 2014 08:26:50 +0000
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