Warren's letters get shorter by the year but his investing wisdom is gold - some notes below:
No finish line (page 7)
We like his idea of having no finish line for your goals; think this is one reason for Warren's optimism and longevity.
Repurchases (page 5)
While the section this year may have been aimed at Joe Biden's buyback tax, Warren's thoughts on share buybacks/repurchases are simple and worth re-reading. Repurchases help the continuing investor when made at value-accretive prices i.e. below intrinsic value. Naturally this estimate will vary among investors but the general idea is clear. Among the undervalued stocks we seek, repurchases should add significant value.
His emphasis on "fully-informed" parties is important - this is a point Ben Graham lamented in Security Analysis when observing managements exploit selling shareholders without providing full information.
Operating earnings vs. net income (page 4)
Investors should naturally focus on the operating profits of a business rather than the bottom line primarily because fair value movements of some investments flow through the P&L - this makes screening for p/e ratios somewhat meaningless but you could still find genuinely undervalued stocks; and the aggregate bottom line over many years is important for investors.
Weeds wither, Flower bloom (page 4)
This is a pleasant thought - with the tailwind of equities, your mistakes gradually diminish over time as your winners grow. Just make sure you don't go in too heavy as mistakes are inevitable.
Munger's Wisdom (page 8)
- Exploit the gambling impulse inherent in stocks by being patient; that's the source of your profits.
- Invert: Find out how an investment could die, and don't go there.
- Focus: It takes conscious effort to avoid the plethora of distractions vying for your attention, and do meaningful work.
- Great companies, good long-term investments, more value over time: Heard Warren once say that he looks for businesses that generate more and more earnings over time - sounds simple when he says it; the trick is to avoid forecasting mistakes (which are very easy to make) and not overpaying.
- Don't count on getting rich twice: This is fundamental; You only have to get rich once, and it may not happen again. Crucial to be safe and careful in this business.
2008 Berkshire AGM
This meeting was in May 2008 before the Lehman crisis but after cracks started appearing in the mortgage securities market (including at Bear Stearns). Notes at timestamps below:
59:30 Pair Trading
Buffett refers to pair trading - shorting overvalued stocks and buying undervalued stocks in the same industry.
Ben Graham engaged in this technique in the 1920s and made money 4 out of 5 times but lost heavily on the fifth - he seemed to have given up on that strategy as he mentioned in the Intelligent Investor.
In Buffett's case, he shorted the general market to isolate the risk of market declines - An interesting strategy for those inclined. Of course investors could do it more easily these days shorting S&P 500 futures.
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