Every year famous investor Warren Buffet releases a letter to shareholders explaining his investment results for prior year. Warren’s letters are always full of wisdom and perspectives on investing that the average investor can learn a lot from.
Warren’s 2013 letter to shareholders was release today. I highly recommend spending 10-20 minutes giving a his latest letter a read through.
How did Warren Buffet’s Investments Do In 2013?
In 2013 Warren Buffet’s Berkshire Hathaway achieved an increase of per-share book value of 18.2%. The S&P 500 comparatively returned 32.4% with dividends included. This is the second year in a row that he has not been able to beat the market, which is a very infrequent occurrence.
If you examine the period from 1965 to 2013 you’ll see that there are very few years where Warren has not beaten the S&P 500. What is more impressive is that his compounded annual return over that time period is 19.7% where the S&P has only achieved 9.8% over that same period. The difference is a total return of 693,518% for Warren vs. 9,841% for the S&P 500. Put in that preservative you begin to see just how successful Warren Buffet has been over the course of his investment career.
Warren’s Words of Wisdom from his 2013 Letter To Shareholders
I tell these tales to illustrate certain 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 promised quick profits, respond with a quick “no.”
Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that
a given asset has appreciated in the recent past is never a reason to buy it.
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.
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.”)
My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.