Highlights from Warren Buffett's annual letter to shareholders

[Brendan Burgess]

https://www.cnbc.com/2018/02/24/highlights-from-warren-buffetts-annual-letter.html

Turn off the sound so you don't have to listen to a really loud guy talking about baseball at the start or maybe skip a bit.

Here are my highlights of these highlights

'Insane to risk what you have....to obtain what you don't need.'
"Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don't need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us. We also hold it today after a million or so 'partners' have joined us at Berkshire."

Why investors shouldn't use borrowed money to buy stocks
"There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions."

On efficient markets...
Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential."

 

[joe sod]

"It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals — to measure their investment 'risk' by their portfolio's ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk."

he also had this interesting observation in relation to bonds, obviousy not a fan of investing in bonds. Maybe he is warning investors of what will happen to bonds especially now after a historically low interest rate period as interest rates rise again.

 

[Steven Barrett]

Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. "Risk" is the possibility that this objective won't be obtained.

 

[sunnydonkey]

Maybe he is warning investors of what will happen to bonds especially now after a historically low interest rate period as interest rates rise again.

Indeed, when interest rates rise, as they inevitably will, the market value of bonds will decline, possibly substantially.

It's often said that holding bonds to maturity, will at least guarantee the return of your capital and interest. However this is not always the case and each bond holding need to be examined individually. For example, what is the impact on an issuing company if another bond issue matures before yours and needs to be renewed on a much more expensive basis?