Insights from the “Oracle of Omaha”
In his 2018 Berkshire Hathaway annual report, published in February, renowned investor Warren Buffett reiterated the holding company’s objective to purchase well-managed businesses with positive and sustainable economic characteristics – and to buy them at sensible prices.1
Berkshire Hathaway joined many other companies in buying back its own shares in 2018 – to the tune of about $1.3 billion. While this is a stabilizing tactic, Buffett admits it will lead to diminished growth prospects relative to past performance. In fact, losses experienced during the fourth quarter of 2018 caused an unexpected performance drag. Going forward, however, Buffett is confident about Berkshire Hathaway’s current holdings and plans to continue purchasing more of the same in 2019.2
The following are some additional lessons and insights gleaned from this year’s letter:
- It is not enough to buy a good business, it’s important to buy it at the right price. This means low enough that there is some “margin of safety” should its value drop in the future.3
- Use financial debt sparingly, as it is not prudent for investors to risk “what they have and need for what they don’t have and don’t need.”4
- Buffett also cautioned that because many stocks are overpriced today, it’s difficult to find well-priced, well-managed businesses. Therefore, he discourages investors from selling any stocks currently that fall into this category.5
- He also reiterates that investors should not pay attention to quarterly fluctuations but instead focus their due diligence on operating earnings and worry less about short-term gains or losses.6
- As always, Buffett is a big believer in American commerce. However, he recognizes that we live in a global economy and our success is interdependent on the success of other countries’ economies. Therefore, he plans to continue investing “significant sums” in opportunities worldwide.7
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1 Warren Buffett. February 2019. “Berkshire Hathaway 2018 Annual Report.” http://www.berkshirehathaway.com/2018ar/2018ar.pdf. Accessed Feb. 25, 2019.
2 Paul O’Donnell. Dallas Morning News. Feb. 24, 2019. “Warren Buffett calls this Fort Worth company a ‘towering redwood.’ Here’s why.” https://www.dallasnews.com/business/business/2019/02/24/warren-buffett-called-fort-worth-company-towering-redwood. Accessed Feb. 25, 2019.
3 Gary Mishuris. Forbes. Feb. 25, 2019. “Berkshire Hathaway 2018 Annual Letter: 6 Insights From Warren Buffett.” https://www.forbes.com/sites/garymishuris/2019/02/25/berkshire-hathaway-2018-annual-letter-6-insights-from-warren-buffett/. Accessed Feb. 25, 2019.
5 Seeking Alpha. Feb. 23, 2019. “2018 Berkshire Hathaway Letter To Shareholders: 3 Key Takeaways.” https://seekingalpha.com/article/4243605-2018-berkshire-hathaway-letter-shareholders-3-key-takeaways. Accessed Feb. 25, 2019.
6 Mark Kolakowski. Investopedia. Feb. 24, 2019. “5 Things We Learned From The Warren Buffett Annual Letter.” https://www.investopedia.com/5-things-we-learned-from-warren-buffett-s-annual-letter-4587786. Accessed Feb. 25, 2019.
7 John Melloy. CNBC. Feb. 23, 2019. “Warren Buffett describes a great ‘American Tailwind’ in annual letter — here are the highlights.” https://www.cnbc.com/2019/02/23/here-are-the-highlights-from-warren-buffetts-annual-letter-to-berkshire-hathaway-shareholders.html. Accessed Feb. 25, 2019.
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