What investors can learn from Warren Buffett’s latest letter

Warren Buffett, the chairman and CEO of Berkshire Hathaway, is a friend we all need for our investment tips. Remarkably, at an age where most people’s cognitive functions have entirely relapsed, Buffett captures the world’s attention with his investment strategies. The business tycoon does not only pick the right companies but also faithfully delivers. In his own words: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

In his letter to Berkshire shareholders this year, billionaire Warren Buffett encouraged investors to maintain their faith in America’s economy. The letter did mention a few things that can help investors.

Let’s look at a chunk of wisdom from Warren Buffett’s latest letter.

1) Even billionaires make mistakes: “In purchasing PCC, Berkshire bought a fine company – the best in its business. Mark Donegan, PCC’s CEO, is a passionate manager who consistently pours the same energy into the business that he did before we purchased it. We are lucky to have him running things. I believe I was right in concluding that PCC would, over time, earn good returns on the net tangible assets deployed in its operations. I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business. PCC is far from my first error of that sort. But it’s a big one,” Warren Buffett wrote.

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2) Don’t bet on bonds: “And bonds are not the place to be these days. Can you believe that the income recently available from a 10-year US Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return
on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future,” Buffett wrote

3) Never bet against America: “In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming “a more perfect union.” Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so,” he wrote.

4) Stick to your long term plans: The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and “stories,” they will not lack suitors. “Technicians” will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop. Many of those investors, I should add, will do quite well. After all, ownership of stocks is very much a “positive-sum” game. Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original “selections.”

5) Assets such as farms, real estate will be rewarded: Productive assets such as farms, real estate and, yes, business ownership produce wealth – lots of it. Most owners of such properties will be rewarded. All that’s required is the passage of time, an inner calm, ample diversification and minimization of transactions and fees. Still, investors must never forget that their expenses are Wall Street’s income. And, unlike my monkey, Wall Streeters do not work for peanuts.

The biggest investment lesson one can learn from Warren Buffett is this — “The most important investment you can make is in yourself.” He is always learning and always spending time on personal development. Even at the age of 90.