Happy Women’s Day!
To show our gratitude for the women (and the men) in the WealthPark community, we’ve got something special for you this week!
We don’t know if you’ve heard, but the Oracle of Omaha himself, Warren Buffett, has recently released the much-anticipated Berkshire Hathaway Annual Shareholders’ Letter and we, at WealthPark have decided to share, condense and compile THE ONE THING users have learned from reading Warren Buffett’s Shareholders’ Letter.
This way, you can get the good stuff without having to squeeze your time and scamper through the entire article!
Get your pens and notebooks ready because we are about to drop some gems!
“Focus on the Forest, Not on the Trees”
In the shareholders’ letter, Warren Buffett said that there are some ‘trees’ that may not last until the next decade.
However, as Berkshire is a financial fortress, much like a forest rather a lone tree,
that entire ‘forest’ is bound to stay for decades to come due to their superior economic advantage.
Like what Benjamin Graham, Father of Value Investing said,
“Quantitative data are useful only to the extent that they are supported by a qualitative survey of the enterprise.” (Security Analysis pg.474)
Clearly, Buffett’s mentor has taught him well as the idea has not changed since the writing of Security Analysis in 1936.
We want to identify companies with superior economic advantages that will protect them from any threat in the industry and withstand the test of time.
As a result of his learning, not only has Buffett been owning some companies that has been around for decades over the years (e.g. Coca-Cola),
he has also been successfully compounding Berkshire Hathaway’s return at 19% CAGR for 55 years, together with his business partner, Charlie Munger.
So, start identifying companies with superior economic advantage around you now and study their business!
-Ming Yao, WealthPark User-
“Earnings from Operations Over Gains and Losses”
In Warren Buffett’s Annual Shareholders’ Letter, I learnt how mark-to-market accounting affects balance sheets and earnings.
This new GAAP (Generally Accepted Accounting Practice) required Berkshire Hathaway to value its securities in their investment portfolio to reflect current market prices.
Recalling his 2017 annual letter, Buffett mentioned that this new rule caused “wild and capricious swings in the bottom line.”
So, what should we focus on then?
In his letter, the Oracle of Omaha advised investors to focus on the operating earnings instead and to pay less attention to gains and losses of any variety.
-Terry, WealthPark User-
“A Great Business at A Ridiculously High Price Is Still a Poor Investment”
Regardless of how great a business may be,
if it was purchased at a ridiculously high price, it will forever be a poor investment,
if not for a painfully long period of time.
In other words, when we buy companies at a premium,
it takes pretty darn long for share prices to catch up and for us to enjoy returns, if we get to enjoy them at all.
This lesson struck me like a lightning, as I too have once bought a company which I thought was stupendous in many ways
only to experience losses later and had to wait for a while for its recovery to earn my returns.
This also reminded me not to be overly excited when I discover a great company,
but to first calmly assess their intrinsic value and wait patiently for the opportunity to invest.
-Eric, WealthPark User-
“Usually Win, Occasionally Die”
Leverage is like playing Russian- roulette, the probability of success may be high, but the consequences can also be fatal!
A grand example would be the 08/09 subprime mortgage financial crisis when bankers resorted to selling low-credit-score mortgage bonds, after they ran out of those with high credit scores.
Millions who bought the bonds lost their jobs and their homes when the low-credit-score homeowners defaulted on their mortgage payments.
With that in mind, I remind myself to always be cautious with my investments and never ever leverage to invest.
Even if I am to invest my entire fortune without any borrowings, the worst thing that could happen is that I lose all that I have, but nothing else beyond that.
Then come the second thing, which is to ensure the companies I invest in are not over-leveraging.
In fact, it would be better if they have no debt at all.
At least in the event where the Feds increase the interest rates, it would not affect my investments.
Like what Buffett said in his letter, “rational people don’t risk what they have and need for what they don’t have and don’t need.”
-Alex, WealthPark User-
In case you would like to read this letter yourself, you can find it right here
OR if you would like to join in, share your experiences and contribute to our content,
you can also write in to us at firstname.lastname@example.org!
P/S: Remember to express your gratitude and thank the women in your life this Women’s Day!
Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author(s) involved in the writing of this piece do not have current vested interest of the company. Please consult a competent professional for expert financial or other assistance or legal advice.