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Warren Buffett on Saturday released his annual letter to Berkshire Hathaway shareholders, offering subtle investment advice to readers who may be looking to grow their wealth the way the centibillionairehas.
Buffett has written an annual letter since 1965, offering an analysis of the performance of the holding company’s investments along with his observations of financial trends and pitfalls.
He has also given advice over the years, The Wall Street Journal noted in an analysis of each of his letters, including cautioning investors on fast-growing companies, which he calls “the worst sort of business,” and describing fear and greed as two, inevitable “super-contagious diseases” plaguing the investment community. Buffett suggested in 1987 that savvy investors should attempt to invert the two, writing, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Here’s what Buffett suggested to investors in this year’s letter:
Buffett begins by lauding his sister, Bertie, whom he describes as extremely well-read and understanding of many accounting terms, though by no means an economic expert or prepared for a CPA exam. Her instincts make up his first key piece of advice.
He writes: “She is sensible — very sensible — instinctively knowing that pundits should always be ignored. After all, if she could reliably predict tomorrow’s winners, would she freely share her valuable insights and thereby increase competitive buying? That would be like finding gold and then handing a map to the neighbors showing its location.”
Buffett then details some of Berkshire’s “long-duration partial-ownership” investment successes: American Express and Coca-Cola, which began operations in 1850 and 1886, respectively.
Berkshire Hathaway made significant investments in Coca-Cola in 1988 and American Express in 2001, which Buffett noted have not been touched in the decades since, despite each company’s occasional failed attempts at expansion and moments of mismanagement.
“The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it,” Buffett writes. “Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.”
Buffett goes on to say that the stock market is becoming more and more like a casino, offering daily temptations to ignore his long-term investment strategy and quickly turn over holdings when “feverish activity” brings all number of uninformed or ill-intentioned actors out of the woodwork.
He writes: “At such times, whatever foolishness can be marketed will be vigorously marketed — not by everyone but always by someone.”
He notes do not fall for the marketing of the foolishness, or the scene could turn ugly, and the average investor may walk away “bewildered, poorer, and sometimes vengeful.”
“One investment rule at Berkshire has not and will not change: Never risk permanent loss of capital. Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been — and will be — rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes.”
