# Warren Buffett's Shareholder Letter 2013



## Steven Barrett (6 Mar 2014)

Last Friday (28 February) Warren Buffett issued his annual shareholder letter. His company, Berkshire Hathaway has an equity base of $225bn. Below are the main bits I took out of it. It's well worth downloading and having a read. http://www.berkshirehathaway.com/letters/letters.html

1. Charlie and I have always considered a “bet” on ever-rising U.S. prosperity to be very close to a sure thing. Indeed, who has ever benefited during the past 237 years by betting against America?

2. They simply can’t turn their back on business that is being eagerly written by their competitors. That old line, “The other guy is doing it, so we must as well,” spells trouble in any business.

3. 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.”

4. 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.

5. 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.

6. 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.

7. 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.”)

8. 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.

9. Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.

10. A climate of fear is your friend when investing; a euphoric world is your enemy.

11. During the extraordinary financial panic that occurred late in 2008...Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?

12. If, however, we lack the ability to estimate future earnings – which is usually the case – we simply move on to other prospects. In the 54 years we have worked together, we have never foregone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.

13. It’s vital, however, that we recognize the perimeter of our “circle of competence” and stay well inside of it. Even then, we will make some mistakes, both with stocks and businesses. But they will not be the disasters that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.

14. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

15. The “when” is also important. The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. (Remember the late Barton Biggs’ observation: “A bull market is like sex. It feels best just before it ends.”) The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well off their highs. Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long- term results than the knowledgeable professional who is blind to even a single weakness.

16. Ben Graham's adage: Price is what you pay, value is what you get


----------



## Brendan Burgess (6 Mar 2014)

S

Thanks for that summary. It really is great stuff and should be compulsory reading for anyone with money. 

I particularly like this bit

"the “know-nothing” investor who both diversifies and keeps his costs  minimal is virtually certain to get satisfactory results. Indeed, the  unsophisticated investor who is realistic about his shortcomings is  likely to obtain better long- term results than the knowledgeable  professional who is blind to even a single weakness."

Brendan


----------



## postman pat (6 Mar 2014)

"the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long- term results than the knowledgeable professional who is blind to even a single weakness."

I must agree with Brendan the above paragraph sums up most things you need to know about investing.
Someone cleverer than me once said also "good advice is no good unless you put it into practice"


----------



## Steven Barrett (7 Mar 2014)

He makes it seem all so simple. So why do people get it so wrong and so often?


----------



## QED (7 Mar 2014)

SBarrett said:


> So why do people get it so wrong and so often?


 
Gambling to make quick gains in the short term.


----------



## Rory Gillen (13 Mar 2014)

Brendan Burgess said:


> S
> 
> Thanks for that summary. It really is great stuff and should be compulsory reading for anyone with money.
> 
> ...



It's a humbling business Brendan, don't I know! But it's also a fascinating one.


----------



## Jim2007 (14 Mar 2014)

SBarrett said:


> He makes it seem all so simple. So why do people get it so wrong and so often?



His partner Charlie Munger has the answer:  



> “If [investing] weren’t a little difficult, everybody would be rich.”



And here is Charlie's explanation of what they do:



> You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.



Not so easy after all!

I prefer to hear it from Charlie and try to read his book recommends when he mentions some.


----------



## joe sod (24 Mar 2014)

There is no question about the ability and record of Warren Buffet. However the recent performance of Berkshire Hathaway since 2006 has not been great. He has definitely preserved capital and recovered from the 2008 crisis which even Berkshire was affected by.The size of the fund means that there are very few things it can invest in. There is a very good fund manager in Spain Francisco Garcia Parames who is still in his forties and has a track record of investing back to 1990. He is widely regarded as Europes Warren Buffet with a similar type of investment record. Also funds like Donald Yacktman and Tweedy Browne in the US which have exceptional long term steady records


----------

