SOME NOTES FROM WARREN BUFFET AS OF 24 FEBRUARY 2014


Investing & Money
piece written on the 25th February 2014 by  

Each year Warren Buffet writes a shareholder letter and this year we’re lucky enough to receive an excerpt from the letter that details two of this early real estate purchases: a farm and a commercial property. Through these purchases he learnt a number of things and he’s sharing these things with us.

The topic of real estate and shares is one that will never end. Some people favour real estate and some favour shares, all the arguments are sound but if you ask me, there’s no one-size-fits-all and that’s what makes it so difficult when deciding. I love this article because it points out some comparisons between real estate and shares in such a way that you’re able to learn.

Warren Buffet

From these two property purchases he made, he outlined 5 really useful and interesting points:

  1. 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.”
  2. 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.
  3. 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.
  4. 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.
  5. 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.”)

Warren goes on to talk a bit about Ben Graham and how he purchased Ben’s book, The Intelligent Investor, in 1949 and it still shapes his investment decisions today. You can buy The Intelligent Investor on Kalari or Amazon.

And I’ll sign off this article by quoting someone, “If it costs more to own than rent, something isn’t right. A home is not an “investment” unless you rent it to others.”