Evaluate the Forest, not each Tree
Warren Buffett has a way of communicating financial principles in ways that hit home, and this year’s annual letter to shareholders is no exception. He’s managed Berkshire Hathaway since 1965, growing the company into a $500 billion conglomerate that owns and operates 66 different businesses generating $225 billion in sales.
The value investing approach and methodology Warren Buffett and Charlie Munger speak about in their annual letter is, with certain nuances in how we capture it, the value premium a significant portion of our portfolios are seeking to capture.
As always, there are other nuggets of wisdom in this year’s letter to shareholders.
Here are the biggest takeaways from Warren Buffett’s annual letter
–Rebecca Ungarino for Business Insider–
Warren Buffett, the chairman and CEO of Berkshire Hathaway, released his annual letter to shareholders on Saturday. Buffett discussed items like his plans to repurchase the company’s stock and how a new accounting rule impacts Berkshire Hathaway’s bottom line. The 88-year old investor made no explicit statements about plans for succession at the company. Each year, Berkshire Hathaway investors and the broader investment community look to chairman and CEO Warren Buffett’s annual letter for Read the full story
I’m not sure Yogi Berra is big source of investment knowledge for most investors. But, that doesn’t mean his words of wisdom, “déjà vu all over again,” don’t apply.
Today’s Wall Street Journal included an article titled, “Value Investors Face Existential Crisis After Long Market Rally.” It discussed the “rut” that value investing has experienced since 2009. No arguments there. Value stocks are down about 1% year-to-date while growth stocks are up nearly 8%. The tech-heavy NASDAQ Composite Index, which holds many of the favorite tech names among growth investors, is at its all-time high.
A Familiar Scenario
But as I sipped my morning coffee and read further, I didn’t ask myself how we should change our current value approach (for the portion of our portfolios dedicated to value investing) to match the current environment. Instead, I found myself thinking about earlier in my career, the late 1990s. Tech ruled the day from 1995 through 1999, and value investors lagged back then too.
Berkshire Hathaway’s Warren Buffett released his annual letter to shareholders last Saturday, a publication that is examined and dissected by investors around the world. And this year’s edition underscores why.
Before its release, the S&P 500 closed at its all-time high (again), continuing its rally that began in November. In fact, in the first 38 trading days of 2016, the S&P 500 has posted a new high 11 times. The Dow Jones Industrial Average and Russell 2000 Index have printed new highs 14 and 3 times in 2016, respectively.
Even the greenest of investors is likely aware that stocks move in both directions, and that periods of upswings have historically been followed by downturns. The Holy Grail, of course, is how to invest through all the ups and downs, and Buffett offers his view:
The explosion of technology in the last 20 years has brought all sorts of firepower to our desktops such that many individuals feel empowered and encouraged do it themselves, become the next Warren Buffett.
Then there’s the media coverage that glorifies traders for making “a great call” on Company XYZ’s latest earnings release or interviewing Portfolio Manager John Doe and his top performing mutual fund the last x years.
As a former deep value analyst who studied legendary investor Warren Buffett (including traveling to Omaha for the annual shareholder meetings, a.k.a., “Woodstock for capitalists”), I always enjoy the Berkshire Hathaway annual shareholder letter. This year marks Buffett’s 50th letter, making the reading all the more special.
There’s always something investors can learn from Buffett’s writings, but I approach the letters from a different angle. The keen insights Buffett shares when describing how he runs Berkshire Hathaway can be applied to any business … and any family wealth.
“Given the big run that stocks have had, it’s probably a good time to sell.”
I recently heard this at a holiday party, but what struck me was how often I’ve heard the same thinking over the last 5 years … only with a different catalyst.
There seems to be plenty to worry about these days. Richard Bernstein Advisors recently published the latest list of fears.