What are some good takeaways from Warren Buffett's annual letters? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Here are the eight things I've learned from uncle Warren's 2017 annual shareholder letter:
- The new Tax Bill is good news: Berkshire's gain in net worth during 2017 was $65.3 billion, with a compound annual growth rate of 19.1% for 53 years. As Uncle W puts it, only $36 billion came from Berkshire's operations. The remaining $29 billion was delivered to Berkshire in December when Congress rewrote the U.S. Tax Code.
- Bottom-line numbers can be misleading: The changes in the Generally Accepted Accounting Principles will create confusion about Berkshire's earnings, as moving forward they are forced to include the unrealized gain coming from the stocks they hold. Warren is warning every one of such fluctuations.
- The market is overpriced (not just the stock market): All acquisition opportunities Berkshire looked at during 2017 were overpriced. In his humorous ways, Uncle W makes fun of the CEOs who find every grain of evidence and data they can to justify acquisition prices. I'm concluding; we will see a lot of write-offs in the recent acquisitions that are happening in the market.
- There are only a few things you need to know to evaluate a stock as a long term investor: Durable competitive strengths; Able and high-grade management; Good returns on the net tangible assets required to operate the business; Opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.
- Invest in unsexy necessities: Berkshire continued investing in companies that are not sexy but needed. From HomeServices brokerage firm to truck drivers' roadside stop operator, Berkshire's 19% company annual growth rate comes from being prudent and boring.
- Charting and price patterns means nothing: Nothing to say, rather than quoting Warren: "Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their "chart" patterns, the "target" prices of analysts or the opinions of media pundits. Instead, we simply believe that if the businesses of the investees are successful (as we believe most will be), our investments will be successful as well. Sometimes the payoffs to us will be modest; occasionally the cash register will ring loudly. And sometimes I will make expensive mistakes. Overall - and over time - we should get decent results. In America, equity investors have the wind at their back."
- There is no telling in how much the stock market can fall: Any intelligent investor must account for that. For that, never, ever, never, ever (did I repeat the word never enough?) invest the money you need to live your life as you know it.
- Fees are the devil: Not the little $4.99 you pay your brokerage to buy and sell stocks for fun. The avg. 2.5% fee that those money managers charge you and your 401Ks, pensions funds, etc. Stay smart!
Stay intelligent, my fellow investors!
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