Investing keys from the Oracle’s latest letter

You’d be hard pressed to find any passionate investor who doesn’t enjoy reading the words of wisdom contained in Warren Buffett’s annual letter to Berkshire shareholders.  Here are some of the investing keys I took away from his recent letter:               

“Over the stock market cycle between yearends 2007 and 2013, we overperformed the S&P. Through full cycles in future years, we expect to do that again. If we fail to do so, we will not have earned our pay. After all, you could always own an index fund and be assured of S&P results.”

  • Buffett makes reference to the value active money management should provide you.  If your investments aren’t beating the index, you should probably invest in an index fund.  We’ll see this theme again below.

“With Heinz, Berkshire now owns 8 1⁄2 companies that, were they stand-alone businesses, would be in the Fortune 500. Only 491 1⁄2 to go.”

  • Now that’s a capitalist statement if I ever read one…

“Berkshire increased its ownership interest last year in each of its “Big Four” investments – American Express, Coca-Cola, IBM and Wells Fargo.”

  • Hints for investing choices maybe?

One of Buffett’s “fundamentals of investing”:

“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences.”

When discussing how much to monitor the market, using his farmland and property investments as an analogy:

“With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”

When sharing his perspectives on market predictions:

“Forming macro opinions or listening to the macro or market predictions of others is a waste of time.  Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)”

On advice for the retail investor:

“The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”

On advice provided to the trustee of his will:

“My advice to the trustee could not 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. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”

Any thoughts on the above?  Did you read Buffett’s letter this year and if so, did anything else jump out at you?

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