It is almost like a ritual that the world’s greatest investor has been practicing. Once a year, Warren Buffett will write a long letter to his shareholders. His words of investing are so sought after that there’s even books that compile his annual shareholder letters. The reason why his words are so sought after is because he never fails to impart investing lessons to his readers. As he publishes his 2018 annual letter, here are five interesting takeaways from Warren Buffett’s annual letter every investor should know about.
Investors Takeaway: 5 Interesting Lessons For Investors From Warren Buffett’s Annual Shareholders Letter
- Simplicity Is The Ultimate Sophistication
When it comes to investing, the general consensus is that it needs to be sophisticated. Anything that is sophisticated will most likely turn out to be good. Yet, when you look at how Warren Buffett does it, he seldom goes for the spectacular. Rather, he goes for what he views as the best bet, which is often unsophisticated nor sexy. In his annual letter, Buffett writes that if he had invested in a no-fee S&P 500 index fund with dividends fully reinvested since he was 11, he would have made more than 5,200 times of his money today.
- Never Stop Investing, Even If The Outlook Is Gloomy
Since 1942, multiple world events have taken place, from World Wars to unrests to recessions. At each point in history, there would have been “prophets of doom and gloom” who discourage you from investing. But Warren Buffett has an advice for you: Almost every naysayer has been proven wrong. Even with all the world changing events taking place, the stock market continues to grow. So, even if the outlook is gloomy, don’t stop investing.
- Gold vs Stocks: The Winner Is Clear
Gold is one of the safe haven assets that investors often park their capital in, especially when there is an impending downturn or volatility. While it is wise to protect your portfolio in times of volatility or uncertainty, you wouldn’t want to hold onto gold for long. If you had held on to gold for the past 60 odd years, your rate of return will be 36 times. Compare that to an investment in a no-fee S&P 500 index fund, the return pales in comparison.
- Prices Are Sky High For Good Businesses
Followers of Warren Buffett will know that the Oracle of Omaha likes to buy good businesses at decent price. How can we forget his famous quote, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” While Warren Buffett continues to “hope for an elephant-sized acquisition” in his annual letter to shareholders, he admits that prices are now sky high for good businesses with decent long-term prospects. If even the world’s best investor is saying that, it is worth paying extra caution to your investments in the current climate.
- Book Value Metric Losing Its Shine
You can tell that it signifies a big shift in sentiments when even the world’s greatest investor is recommending abandoning a practice. This year, Warren Buffett wrote in his annual letter that it is time to abandon the practice of valuing Berkshire Hathaway by its book value. He notes that most of Berkshire’s subsidiaries are in operating businesses where book value cannot truly reflect its value. For investors, it is a warning not to blindly trust the book value when valuing a stock.