Warren Buffett (tag) is the most famous investor ever, head of Berkshire Hathaway and known for his folksy demeanor, common-sense approach to investing (and life) and because every year he writes a letter to the investors in his company.
The letter goes beyond the normal yearly balance you get from most companies and is an open letter available to anyone online. This is the fourth or fifth time I read the letter that’s filled with the wisdom and quotes you could get from your grandpa but that coming from Warren Buffett are a lot of fun to read and analyze. Here are the ones I liked the most this year:
“Don’t ask the barber whether you need a haircut”
What a start! Any questions?
Buffett brings this up while discussing why investment bankers always applaud acquisitions (because they will receive hefty fees) CEO’s will seek such deals (they are the can-do type and acquisitions let them leave their personal mark) and subordinates will cheer up (they get bonuses and supersized salaries as a result).
OK, I will never be involved in discussing an acquisition, how would one apply this to money? For starters, never buy anything on the advice of anyone that gets paid to sell that to you: insurance agents, investment “advisors”, etc. And, of course, don’t ask your actual barber if you need a trim…
“long-tail business”
He didn’t invent the term, which refers to businesses that target low-demand items. How is this relevant for Berkshire? Their core business is insurance, but thanks in part to their size they are able to focus on long-tail insurance deals. Other insurance companies will write you a normal policy to insure your car. These are ‘average’ policies where the money comes and goes constantly. Berkshire, on the other hand, specialized in reinsuring other policies (or other companies, such as AIG) that will not be claimed as often and in the meantime allow them to keep the premiums, accumulate them in what they call ‘float’, money that they leverage to make their own acquisitions. Berkshire sits on $100B in cash…
How can one use this information? Not sure, but it is something I am happy to have learned and one day may come in handy.
“In America, equity investors have the wind at their back.”
Buffett is a devoted believer in the boundless potential of America’s economy and businesses. Sometimes I second-guess myself on whether to pull some money back from stocks and hedge some to bonds but Buffett makes several hints in the letter that there are still opportunities to make money in stocks (even if it is increasingly difficult for him due to the sheer amount of his assets).
“If you can dream—and not make dreams your master;
If you can think—and not make thoughts your aim;”
“Performance comes, performance goes. Fees never falter.”
“Though markets are generally rational, they occasionally do crazy things.”
“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.”
“Stick with big, ‘easy’ decisions and eschew activity”
What’s your favorite quote?
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Love all the quotes!
The about investing and risk is probably the closest to heart.