Warren Buffett, the current chairman and CEO of Berkshire Hathaway shares his insights in his annual letter to his company’s shareholders every year. The 92-year-old market veteran lovingly referred to as the “Oracle of Omaha” shares his views every year with investors around the globe. This year’s annual letter to shareholders published on February 25 this year contains excerpts that both new-age and existing investors cannot afford to ignore. You may dub them investing lessons that have stood the test of time, unbiased of the market conditions.
Buy businesses, not stocks
When you buy stocks, focus on the business. Buffett usually invests in businesses that he can control. This way, he has a direct role in the company’s operating decisions. Businesses need both trust and rules to be managed. Also, his company buys publicly-traded stocks through which he passively owns pieces of businesses. Holding on to these stocks is equivalent to holding on to the companies’ management and relying on them for future growth and earnings.
Buying stocks is more than just mere online transactions wherein some shares are bought for money. The stocks are bought based on expectations of long-term performance, thus, underlining the need to check the quality of businesses before buying their stocks. Buffett describes himself best as a business picker and not a stock picker.
The dividend payout can be fantastic and can add a great deal to one’s wealth. While dividend stocks may not seem a great option to swear by, the expectation is that these dividends would grow with businesses over the period. Apart, many people compare equity investments with fixed-income instruments in India like bonds and others citing the safety component in the latter.
Buffett leaves an important line for his investors to remember: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.
Focus on the operational figure
Do not believe the Generally Accepted Accounting Principles (GAAP) figures alone. It does not matter if they are quarterly or annual earnings. What is important is the capital gains earned by any company as it holds the key to possible growth in the future.
Lamenting at how these figures can be manipulated to deceive vulnerable investors, Buffett shared that such tampering is resorted to with the support of the companies’ CEOs, board of directors and advisors with reporters and analysts being a part of this well-conceived conspiracy.
Buffett described, “Only a deep desire to deceive is required. ‘Bold imaginative accounting,’ as a CEO once described his deception to me, has become one of the shame of capitalism.”
Berkshire Hathaway’s method to assess businesses can be best described as conventional with a traditional outlook. The company maintains that its CEO will always be someone willing to take investment risks or is best described as the Chief Risk Officer.