I Have Read All The Letter To Shareholders By Warren Buffett.

Reading Them Is Like Reading a Bible Of Investing

My Summary Of Warren Buffett's Letters To shareholders ( 1971 - 2020 )

A Mega Thread

Inspiration -- @FI_InvestIndia

Buffett select such investments on a long — term basis , weighing the same factors as would be involved in the purchase of 100 % of an operating business :

( 1 ) favorable long — term economic characteristics.

( 2 ) competent and honest management.

( 3 ) purchase price attractive when measured against the yardstick of value to a private owner.

( 4 ) an industry with which we are familiar and whose long — term business characteristics we feel competent to judge.

Warren believe that short — term forecasts of stock or bond prices are useless .

The forecasts may tell you a great deal about the forecaster ;

they tell you nothing about the future .

Buffett never take the one — year figure very seriously .

After all , why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off ?

Instead , He recommend not less than a five — year test as a rough yardstick of economic performance .

If the holders of a company’s stock and / or the prospective buyers attracted to it are prone to make irrational or emotion — based decisions , some pretty silly stock prices are going to appear periodically .

Manic — depressive personalities produce manic — depressive valuation

In selecting common stocks , Buffet devote His attention to attractive purchases , not to the possibility of attractive sales .

“When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics , it is the reputation of the business that remains intact .”

An Extract From Buffett Letter --

What we do know , however , is that occasional outbreaks of those two super — contagious diseases , fear and greed , will forever occur in the investment community.

The timing of these epidemics will be unpredictable .

And the market aberrations produced by them will be equally unpredictable , both as to duration and degree .

Therefore , we never try to anticipate the arrival or departure of either disease .

Our goal is more modest :

we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful .

When investing ,we view ourselves as business analysts — not as market analysts , not as macroeconomic analysts , and not even as security analysts .

Our approach makes an active trading market useful , since it periodically presents us with mouth — watering opportunities .

The goal of each investor should be to create a portfolio that will deliver him or her the highest possible look — through earnings a decade or so from now .

An approach of this kind will force the investor to think about long — term business prospects rather than short — term stock market prospects , a perspective likely to improve results .

A tolerance for short — term swings improves your long — term prospects .

Importance Of Growth of a Company--

Growth is always a component in the calculation of value , constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive .

Warren On Circle Of competence--

Intelligent investing is not complex , though that is far from saying that it is easy .

What an investor needs is the ability to correctly evaluate selected businesses .

Note that word “ selected ” : You don’t have to be an expert on every company , or even many .

You only have to be able to evaluate companies within your circle of competence . The size of that circle is not very important ; knowing its boundaries , however , is vital .

To invest successfully , you need not understand beta , efficient markets , modern portfolio theory , option pricing or emerging markets .

You may , in fact , be better off knowing nothing of these .

If a business is complex or subject to constant change , we’re not smart enough to predict future cash flows .

Incidentally , that shortcoming doesn’t bother us .

What counts for most people in investing is not how much they know , but rather how realistically they define what they don’t know .

An investor needs to do very few things right as long as he or she avoids big mistakes .

Buffett On Margin Of safety --

We insist on a margin of safety in our purchase price .

If we calculate the value of a common stock to be only slightly higher than its price , we’re not interested in buying .

We believe this margin — of — safety principle , so strongly emphasized by Ben Graham , to be the cornerstone of investment success.

On Index Funds --

By periodically investing in an index fund , for example , the know — nothing investor can actually out — perform most investment professionals .

Paradoxically , when “ dumb ” money acknowledges its limitations , it ceases to be dumb .

The truly big investment idea can usually be explained in a short paragraph .

We like a business with enduring competitive advantages that is run by able and owner — oriented people.

Selling fine businesses on “ scary ” news is usually a bad decision .

In Buffett's View investment students need only two well — taught courses —

How to Value a Business

How to Think About Market Prices .

Though practically all days are relatively uneventful , tomorrow is always uncertain.

It is madness to risk losing what you need in pursuing what you simply desire .

What is Investing and Risk?

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 .

What makes a Company Financially Stable?

( 1 ) a large and reliable stream of earnings

( 2 ) massive liquid assets

( 3 ) no significant near Term cash requirements .

Ignoring that last necessity is what usually leads companies to experience unexpected problems.

Ben Graham said many decades ago :

“ In the short — term the market is a voting machine ; in the long — run it acts as a weighing machine . ”

In the world of business , bad news often surfaces serially :

You see a cockroach in your kitchen ; as the days go by , you meet his relatives .

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 .

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future .

Long ago , Sir Isaac Newton gave us three laws of motion , which were the work of genius .

But Sir Isaac’s talents didn’t extend to investing : He lost a bundle in the South Sea Bubble , explaining later , “ I can calculate the movement of the stars , but not the madness of men .”

If he had not been traumatized by this loss , Sir Isaac might well have gone on to discover the Fourth Law of Motion :

For investors as a whole , returns decrease as motion increases .

When a problem exists , whether in personnel or in business operations , the time to act is now .

Questions While Analyzing Management --

1/
does the company have the right CEO ?

2/
Is he / she overreaching in terms of compensation ?

3/
Are proposed acquisitions more likely to create or destroy per — share value ?

What Does Work Means To Warren?

Though “ working ” means nothing to me financially , I love doing it at Berkshire for some simple reasons :

It gives me a sense of achievement , a freedom to act as I see fit and an opportunity to interact daily with people I like and trust .

Smile when you read a headline that says

“ Investors lose as market falls . ” Edit it in your mind to “ Disinvestors lose as market falls — but investors gain . ”

Book Recommendation By Warren Buffett--

The Intelligent Investor (recommended in many letters)

1940 edition of Security Analysis (recommended in many letters)

Bull ! by Maggie Mahar (recommended in 2003)

The Smartest Guys in the Room by Bethany McLean and Peter Elkind (recommended in 2003)

In an Uncertain World by Bob Rubin (recommended in 2003)

Common Stocks and Uncommon Profits (recommended in 2012)

Jack Bogle’s The Little Book of Common Sense Investing (recommended in 2014)

That's It For This Thread.

Wait For Some Minutes and Reflect What You Learned.

Remember Execute Things In Real Life.

You Have All The Resources With You and Many of them Are Free.

You Can Easily Outperform The Markets.

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