Billionaire Warren Buffett is known as one of the world’s greatest investors, and the 93-year-old has a devout following of people who admire his track record and appreciate his sage advice on life and investing.
Buffett’s latest annual letter to Berkshire Hathaway shareholders, published Saturday morning, was filled with a mix of both.
About investing in shares:
“I cannot remember a period since March 11, 1942 – the date of my first stock purchase – when I had not invested the majority of my wealth in stocks, in American stocks. And so far, so good. The Dow Jones Industrial Average fell below 100 on that fateful day in 1942 when I “pulled the trigger.” I was out about $5 when school was out. Things soon turned around and the index now fluctuates around 38,000. America has been a great country for investors. All they have to do is sit quietly and not listen to anyone.”
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About choosing winners:
“Our goal at Berkshire is simple: we want to own all or part of the companies with good economics that are fundamental and sustainable. Under capitalism, some companies will thrive for a very long time, while others will prove to be a sinkhole. It’s harder than you might think to predict who the winners and losers will be. And those who tell you they know the answer are usually self-deceived or snake oil salesmen.”
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About market panic:
“Markets can – and do – freeze or even disappear unpredictably, as they did for four months in 1914 and a few days in 2001. If you believe that American investors are more stable now than in the past, think back to September 2008. The speed of communications and the wonders of technology are creating instant global paralysis, and we’ve come a long way since the smoke signals. Such immediate panics won’t happen often, but they will happen.
“Berkshire’s ability to immediately respond to market attacks with both massive amounts of money and certainty of performance can present us with an occasional large-scale opportunity. Although the stock market is vastly larger than in our early years, today’s active participants are no more emotionally stable. nor better taught than when I was at school. For whatever reason, markets now exhibit much more casino-like behavior than when I was young. The casino is now located in many homes and seduces residents every day. “
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On Berkshire’s prospects for shareholders like his sister Bertie:
“Berkshire should perform slightly better than the average U.S. company and, importantly, operate with significantly less risk of permanent capital loss. However, anything beyond ‘slightly better’ is wishful thinking. This modest aspiration was not the case when Bertie went all-in on Berkshire – but it is now.”
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On his favorite oil investment:
“At year end, Berkshire owned 27.8% of Occidental Petroleum’s common stock and also held warrants that gave us the ability to significantly expand our ownership at a fixed price for more than five years. While we are very pleased with our ownership and the option, Berkshire has no interest in purchasing or managing Occidental. We particularly like the United States’ vast oil and gas reserves, as well as its leadership in carbon capture initiatives, although the economic viability of this technique has yet to be proven. Both activities are very much in the interest of our country.”
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On Charlie Munger’s contributions to the success of Berkshire, which went from a textile mill to the current conglomerate:
“He told me – correct! – that I made a stupid decision buying control of Berkshire. But, he assured me, since I had already taken the step, he would tell me how to correct my mistake. In what I say next, keep in mind that Charlie and his family had not invested a dime in the small investment partnership I was then running and whose money I had used to purchase Berkshire.
“Besides, neither of us expected Charlie to ever own a share of Berkshire stock. Nevertheless, in 1965, Charlie promptly advised me, “Warren, forget ever buying another company like Berkshire. They are wonderful companies bought at fair prices and stop buying honest companies at great prices. In other words, leave behind everything you learned from your hero, Ben Graham. It works, but only if it is applied on a small scale.’ With a lot of backsliding I then followed his instructions.”
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