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Lessons from Warren Buffett's 50th Anniversary letter

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Lessons from Warren Buffett's 50th Anniversary letter .

There is always something to be gleaned from Warren Buffett's annual shareholder letters and this year's letter, which marked the 50th anniversary of Buffett and partner Charlie Munger taking control of their investment company Berkshire Hathaway, was no exception.

This year Buffett also discussed some of the investment mistakes he has made over the decades which was quite reassuring. Even the master investor, who has turned US$1,000 invested 50 years ago into US$7 million today, had some bad investing days! Among his many comments and anecdotes were the following gems.

"It is entirely predictable that people will occasionally panic, but not at all predictable when this will happen. Though practically all days are relatively uneventful, tomorrow is always uncertain. If you can't predict what tomorrow will bring, you must be prepared for whatever it does."

Lesson: You may not be able to predict, but you can prepare

"Investors can, by their own behaviour, make stock ownership highly risky. And many do. Active trading, attempts to "time" market movements, inadequate diversification, the payment of high and unnecessary fees, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy."

Lesson: Be aware of your investing enemies

"Share prices will always be far more volatile than cash-equivalent holdings. Over the long term however, currency-denominated instruments are far riskier than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. Volatility is far from synonymous with risk."

Lesson: Know that volatility and risk are not the same thing

"A business with terrific economics can be a bad investment if it is bought for too high a price."

Lesson: The price you pay matters

"Market forecasters will fill your ear but will never fill your wallet."

Lesson: well, that one is self-explanatory!

 

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