Usually, our “3 Things” include – wait for it – three things. But Warren Buffett’s 2018 annual letter to Berkshire Hathaway shareholders is filled with so many interesting things that, today, we’re featuring three insights from this one source (emphasis is ours).
1. Sleeping Well at Night
“Why the purchasing frenzy [from others]? In part, it’s because the CEO job self-selects for ‘can-do’ types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.
But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.”
While Buffett was referring to his and Berkshire Hathaway Vice-Chair Charlie Munger’s approach to making big, new business acquisitions in today’s “cheap debt” environment, we appreciate his perspective on how to acquire new investments without getting carried away. It’s a lesson individual investors and billionaire business moguls alike can embrace.
2. Investing vs. Speculating in the Stock Market
“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.”
Maybe Buffett’s annual shareholder letters are so good at cutting to the chase because he’s had so much practice writing them (since 1970). How many of us have been at it that long?
3. It’s Not Rocket Science
“Stick with big, ‘easy’ decisions and eschew activity.”
There you have it. In one short sentence, Buffett has summed up what you need to know to be a prudent investor. It may not be flashy advice, but his net worth speaks volumes. From that perspective, his words are worth about $10 billion each.
SAGE Serendipity: The brackets have been busted! Also, more on Mr. Buffett and the Madness that is March…from MarketWatch.com “There was also no winner at Warren Buffett’s Berkshire Hathaway, which was offering a $1 million-a-year-for-life grand prize in the billionaire’s annual March Madness challenge.”