Warren Buffett is, I believe, the world’s greatest investor. I certainly can’t find anyone that comes close to his record.
The good news for investors and long term wealth creators like us is that every year he writes a letter to his company shareholders. Being a listed company, this letter is publicly available for anyone to read.
Every year this letter is packed with an analysis of the general economy and lots of little investment insights.
Having read all 13 pages I am now going to share the key takeaways.
Who is the world’s greatest investor?
Warren Buffett is the current Chairman and CEO of Berkshire Hathaway, a publicly listed company in the United States that owns and invests in a range of diverse businesses.
Since Buffett took over Berkshire Hathaway in 1964 its share price has risen 2,810,526%. Which is huge where compared to the S&P500 index (dividends reinvested) which has risen 23,454% over the same period.
To put that into perspective, the compound annual gain over the same period for the S&P500 (dividends reinvested) has been 10.2%. The world’s greatest investor has achieved 20%.
What’s amazing is that Buffett is still working just as hard for the investors he cares about so much even today, at age 90!
His success has led him to become the world’s 4th richest person however he aims to give away 99% of his wealth to philanthropic causes.
Over the years Buffett has seen it all so when he writes it’s definitely worth reading.
2021 tips from the world’s greatest investor
“Operating earnings are what count most….”
Buffett invests in business where he feels earnings will increase over time. This is fundamentally what increases share prices. If earnings continue to increase investors will pay more for a share. This basic principle of investing is sometimes forgotten when looking at the large amount of tech companies that are created every year that are loss making.
“Of course, some of our investees will disappoint, adding little, if anything, to the value of their company by retaining earnings. But others will over-deliver, a few spectacularly.”
This is the beauty of diversification, it’s impossible to be right all the time but if you spread your risk you are not gambling on one or two investments making it big.
“And bonds are not the place to be these days.”
Fixed interest investments also known as bonds are one of the four main asset types (the others being cash, equities and property).
Bonds give you a return by way of interest. The price of bonds has an inverse relationship with the interest rate paid. If prices are high, interest rates are low and vice versa.
Over the years interest rates have continued to decline as central banks around the world have lowered base rates and printed money to buy bonds in order to save their respective economies.
Interest rates are so low that there is really only one way they can go and that’s up. When? Who knows but when they do prices of bonds will come down.
So when it comes to seeking growth in your investment portfolios, bonds are unlikely to deliver this however that is not a reason to sell out of bonds completely. The best way to think about bonds is that they are in your portfolio to reduce volatility because focusing on risk is just as important as growth.
“Charlie and I had an extreme aversion to permanent loss of capital…..”
You need to be clear on the risk you are taking and to ensure you can afford to take this risk. One of Buffett’s most famous quotes is “Rule number one: Never lose money. Rule number two: Never forget rule number one.”
“Berkshire’s job is simply not to meddle with the company’s success. When a business manufactures and distributes a non-essential consumer product, the customer is the boss. And, after 100 years, the customer’s message to Berkshire remains clear: Don’t mess with my candy.”
As long as you have invested correctly, don’t mess with your portfolio. Leave it to do its job.
“These professional managers have a mandate to move funds from one investment to another based on their judgment as to valuation and prospects. That is an honourable, though difficult, occupation.”
Even though Buffett has been the world’s greatest investor when it comes to picking the right companies to invest in, he still believes active fund managers have a very difficult job on their hands. The evidence backs this up. Active fund managers very rarely beat the market and are very unlikely to do it consistently.
He also adds….
“Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original selections.”
The following quote from this year’s letter from the world’s greatest investor sums up the key to investing success perfectly…
“All that’s required is the passage of time, an inner calm, ample diversification and a minimisation of transactions and fees.”
At RTS Financial Planning we share the philosophies of Buffett and our investment strategies are all based on the evidence. Using hundreds of years of data we invest in what works over the long term whilst at the same time reducing risks. All with the ultimate aim of ensuring you are able to leave the life you want with peace of mind.
To understand our evidenced based approach to investing please get in touch for a no obligation chat at our expense.