Arguably the most successful investor of our age whose name is synonymous with the very act of investing, Warren Buffett is known the world over for his staggering successes as well as folksy demeanour. In his eagerly anticipated annual shareholder letter, the Berkshire Hathaway chairman this week shares some sage but startlingly simple investment advice.
Stripping out all the high-browed jargons and toning down on financial rhetorics, Warren Buffett reflected on two small parcels of real estate investment he made to “… illustrate certain fundamentals of investing:
- You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognise [sic] your limitations and follow a course certain 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.
- With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. 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. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”) “
To read the entirety of the 2013 annual Berkshire Hathaway shareholder letter, click here.