Here is my summary key things to learn from Mr.Bueffett's 2018 letter:
Once a CEO hungers for a deal, he or she will
never lack for forecasts that justify the purchase. Subordinates will be
cheering, envisioning enlarged domains and the compensation levels that
typically increase with corporate size. Investment bankers, smelling huge fees,
will be applauding as well. (Don’t ask the barber whether you need a haircut.)
If the historical performance of the target falls short of validating its
acquisition, large “synergies” will be forecast. Spreadsheets never disappoint.
·
Even a high-priced deal will usually boost
per-share earnings if it is debt-financed.
·
It is insane to risk what you have and need in
order to obtain what you don’t need.
·
The less the prudence with which others conduct
their affairs, the greater the prudence with which we must conduct our own.
·
There are two “sides” to every transaction; if we
represent both buyer and seller, the dollar value of the transaction is counted
twice.
·
Betting on people can sometimes be more certain
than betting on physical assets.
·
I view the marketable common stocks that Berkshire
owns as interests in businesses, not as ticker symbols to be bought or sold
based on their “chart” patterns, the “target” prices of analysts or the
opinions of media pundits. Instead, we simply believe that if the businesses of
the investees are successful (as we believe most will be) our investments will
be successful as well. Sometimes the payoffs to us will be modest; occasionally
the cash register will ring loudly. And sometimes I will make expensive
mistakes. Overall – and over time – we should get decent results. In America,
equity investors have the wind at their back.
·
Ben Graham’s oft-quoted maxim proves true: “In the
short run, the market is a voting machine; in the long run, however, it becomes
a weighing machine.”
·
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.
·
When major declines occur, however, they offer
extraordinary opportunities to those who are not handicapped by debt. That’s
the time to heed these lines from Kipling’s If: “If you can keep your head when
all about you are losing theirs . . . If you can wait and not be tired by
waiting . . . If you can think – and not make thoughts your aim . . . If you
can trust yourself when all men doubt you... Yours is the Earth and everything
that’s in it.”
·
If a poll of investment “experts” had been asked
late in 2007 for a forecast of long-term common-stock returns, their guesses
would have likely averaged close to the 8.5% actually delivered by the S&P
500. Making money in that environment should have been easy. Indeed, Wall
Street “helpers” earned staggering sums. While this group prospered, however,
many of their investors experienced a lost decade. Performance comes,
performance goes. Fees never falter.
·
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.
·
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 attained.
·
As an investor’s investment horizon lengthens,
however, a diversified portfolio of U.S. equities becomes progressively less
risky than bonds, assuming that the stocks are purchased at a sensible multiple
of earnings relative to then-prevailing interest rates.
·
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.
·
A final lesson from our bet: Stick with big,
“easy” decisions and eschew activity.
