by fnnewz
Billionaire Warren Buffett is known as one of the world’s greatest investors, and the 93-year-old has devoted followers who admire his career and appreciate his sage advice on life and investing.
Buffett’s latest annual letter to Berkshire Hathaway shareholders released Saturday morning contained a mix of both.
About investing in stocks:
“I do not remember a period since March 11, 1942 – the date of my first stock purchase – when I did not have the majority of my net worth in stocks, American-based 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 had lost about $5 when school ended. Soon, things changed and now that index is around 38,000. The United States has been a fantastic country for investors. All they have had to do is sit in silence, not listening to anyone.”
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About the selection of the winners:
“Our goal at Berkshire is simple: we want to own all or part of companies that enjoy a good economy that are fundamental and durable. Within capitalism, some businesses will prosper for a long time, while others will prove to be sinks. It’s harder than you think to predict who the winners and losers will be. And those who tell you they know the answer are often deceiving themselves or selling deception.”
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On market panics:
“Markets can – and will – unpredictably grind to a halt or even disappear, as they did for four months in 1914 and for a few days in 2001. If you think American investors are more stable now than in the past, think back to September 2008. The speed of communications and the wonders of technology facilitate instant global paralysis, and we have come a long way since smoke signals. This type of instant panic won’t happen often, but it will happen.
“Berkshire’s ability to immediately respond to market seizures with huge sums and certainty of performance may offer us an occasional large-scale opportunity. Although the stock market is enormously larger than in our early years, today’s active participants are no more emotionally stable or better educated than when I was in school. For some reason, markets now exhibit much more casino-like behavior than when I was young. The casino is now found in many homes and tempts its occupants daily.”
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On Berkshire’s prospects, for shareholders like his sister Bertie:
“Berkshire should perform slightly better than the average American corporation and, more importantly, should also operate with a materially lower risk of permanent capital loss. However, anything beyond “a little better” is wishful thinking. This modest aspiration was not the case when Bertie took a chance on Berkshire, but it is now.”
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On his favorite oil investment:
“At the end of the year, Berkshire owned 27.8% of Occidental Petroleum’s common stock and also held warrants that, over five years, give us the option to materially increase our ownership at a fixed price. Although we very much like our ownership, as well as the option, Berkshire has no interest in purchasing or managing Occidental. We especially like its vast oil and gas reserves in the United States, as well as its leadership in carbon capture initiatives, although the economic viability of this technique has not yet been proven. “Both activities are of great interest to our country.”
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On Charlie Munger’s contributions to Berkshire’s success in growing from a textile mill to today’s conglomerate:
“He told me – correctly! – That he had made a foolish decision in buying control of Berkshire. But, he assured me, since he had already made the move, he would tell me how to correct my mistake. In what I tell below, keep in mind that Charlie and his family did not have a cent invested in the small investment company that I managed at the time and whose money I had used to purchase Berkshire.
“Plus, none of us expected Charlie to ever own a share of Berkshire stock. However, Charlie, in 1965, quickly advised me: “Warren, forget about buying another company like Berkshire.” But now that you control Berkshire, add wonderful businesses bought at fair prices and stop buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works, but only when practiced on a small scale.’ After many setbacks I followed his instructions.”
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