The Parable of Warren Buffett
March 22, 2021
Every year the investment world eagerly awaits Warren Buffett’s annual letter to the shareholders of Berkshire Hathaway. This year was no exception. For years we have followed WB (now 90) as a source of undiluted wisdom and common sense. I have always encouraged our clients to buy at least one B share for their children as a way of getting them to focus on the Investment Truths that come from the “Oracle of Omaha.” The last 56 years of WB’s annual letters cover most of the key principles of investing, but I would also recommend the wisdom of his long-time partner Charlie Munger and his book Poor Charlie’s Almanack.
So, what did he have to share this year? Here are some bullet points:
- Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide.
- Bonds are not the place to be these days. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.
- Risky loans are not the answer to inadequate interest rates.
- The math of stock repurchases grinds away slowly but can be powerful over time. The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses.
- There has never been an incubator for unleashing human potential like the USA during its brief 232 years of existence. His unwavering conclusion: never bet against America
- Productive assets such as businesses, farms, and real estate produce wealth – lots of it. Most owners of, and investors in, such assets will be rewarded. All that’s required is the passage of time, an inner calm, ample diversification, and a minimization of transactions and fees.
- Investors must never forget that their expenses are Wall Street’s income.
WB has remained steadfast in his adherence to investment principles, tested and validated over time. He has stoically ignored headlines about the latest craze or fad which can be so seductive to the amateur investor looking for instant riches. I shudder to think how much money has been lost on GameStop, or during the recent correction of some high-flying technology stocks. FOMO (Fear of Missing Out) and hubris can be costly emotions. In recent years investing has sometimes seemed all too easy, and some with very little experience have made money. But never forget that this is a marathon not a sprint! Successful investing is generally dull and methodical.
In his 2013 letter to shareholders, WB discussed his testamentary wishes and stated: “My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.” He further suggested that if you want excitement then – go to Las Vegas!
The essence of our own investment philosophy is – Building Long Term Wealth, not Making Quick Money, a statement which shares much with WB’s approach. And, like him, we try never to forget that in the investment world humility goes a long way.
Nick Hoffman
