Warren on “you” – from his 50th Annual Report

March 3, 2015 - John Osbon (3 mins to read)

Warren Buffet wrote his first annual report to investors in 1965, a year before the first Super Bowl and seven years after the S&P 500 index was established. Little could anyone know then how his company and his wisdom would affect modern investing. His 50th report came out online Saturday morning and like many other people I read it with great interest.  What did he say that investors can use, and what does he see ahead?

How remarkable is Warren Buffett?
Really remarkable is the answer.  He puts his 50 years of investment performance on the first page, proudly pointing out that Berkshire Hathaway has compounded at 21percent  annually over that time while the S&P 500 has returned 10 percent.  $1000 invested in the S&P 50 years ago would be worth about 1100 times more today or $1,100,000.  Impressive, but wait. That same $1000 put into BH would be worth 160 times more than that – about $180 million.  THAT’S how remarkable Warren Buffett is.

At age 84 everyone wonders what comes next.  Will the next 50 years at BH be as good as the previous 50?  Warren thinks so. But he doesn’t see that company as the only path to financial success. He’s stated that 90 percent of the money he leaves to his wife should be invested in an S&P 500 index fund.

Optimism unchained
Warren defines optimism, but it is not blind faith. He’s had a front row seat on economic growth for three generations.  Read his own words to catch his spirit:

“Charlie and I have always considered a ‘bet’ on ever-rising U.S. prosperity to be very close to a sure thing. Indeed, who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see. Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket). The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have. And we will regularly grumble about our government. But, most assuredly, America’s best days lie ahead.”

Warren on youLAFIW
The annual letter presents an honest appraisal of Berkshire’s many businesses, but also offers generous guidance for individual investors. Here are a few of his sage remarks that we can all learn from.

Time and diversification overwhelm risk

“For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities.”

Beware your own bad behavior

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

Avoid predictions

“And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”

Amen to all that, we say, and add our congratulations and admiration for a truly unique investor, Warren Buffett. For the complete letter, click here.

John Osbon – josbon@osboncapital.com



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