Warren Buffett issued his 2022 shareholder letter on 25 February. Over the last number of years, his letters has been getting shorter and this is the shortest one yet. But there are still nuggets of advice to gleam from it to help us be better investors.
“A common belief is that people choose to save when young, expecting thereby to maintain their living standards after retirement. Any assets that remain at death, this theory says, will usually be left to their families or, possibly, to friends and philanthropy. Our experience has differed. We believe Berkshire’s individual holders largely to be of the once-a-saver, always-a-saver variety.”
We find the same with some of our retirees. We have lots of clients who were not high earners but were savers. By the time they got to retirement, they were the Millionaire Next Door. They then find it hard to spend the money they have spent decades accumulating. It is not in their nature.
“Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Charlie and I are not stock-pickers; we are business-pickers.”
Buying good companies is the key to investing and it will make you money over the long term. That is why we trust the methods of the likes of MSCI and Standard & Poors in which companies fit the criteria to be in their indexes.
“Over time, it takes just a few winners to work wonders.”
An investment portfolio will be diversified over different countries and different sectors. Most of the growth in a portfolio will be driven by a few of the companies. We do not know who they will be. When a company IPO’s, we do not know if they will be a success or not. But give it time and their stock will be added to your portfolio and as they are more successful, their weighting will be increased.
“When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in every respect. When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
It is quite simple, if you are a shareholder in a company and there are less shares available, the value of your shares increase. He gives the example of a small auto dealership. One of the three owners, sells his shares back to the company. The other two shareholders go from owning 1/3 of the company to owning 1/2 of the company.
“good luck…a bumpy road…the power of compounding…avoidance of major mistakes…the American Tailwind”
Investing is not straightforward. There will be times when you are nervous, when you want to sell, times when you buy at the bottom, times that you bought at the top, times you got it wrong. But if you reduce your mistakes, don’t borrow to invest and stay the course, you will make money.
06 March 2023