Investing

Warren Buffett’s 2013 Annual Letter

In all my articles on investment, I have been telling you to invest like a businessman. It is more important to be able to know how much profit the company can produce in the next few years than to worry about its current earning. You must know the difference between investing for the productivity of the asset versus investing on hopes that the share price of the asset changes.

Let us look at what Warren Buffett has to say to all his shareholders:

Warren Buffett’s 2013 annual letter to Berkshire Hathaway shareholders will be released shortly.

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Buffett bulleted five fundamentals of investing, which we paraphrase:

“You don’t need to be an expert in order to achieve satisfactory investment returns.” But Buffett also warns that the investor should recognize her limitations and “keep things simple.

“Focus on the future productivity of the asset you are considering.” Buffett notes that no one can perfectly forecast the future profitability of an investment. “[O]mniscience isn’t necessary; you only need to understand the actions you undertake.”

“If you instead focus on the prospective price change of a contemplated purchase, you are speculating.” Buffett has nothing against price speculation. But he emphasizes that it’s important to be able to know the difference between investing for the productivity of the asset versus investing on hopes that the price of the asset changes.

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“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.” In other words, focus on the long-run.

“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.” So mute CNBC, Bloomberg TV, and Fox Business. Unless Warren Buffett comes on.

Buffett open this excerpt with this quote from his mentor Columbia University finance professor Ben Graham: “Investment is most intelligent when it is most businesslike.”

Read the whole except at Fortune.CNN.com

Valuegrowth Investing

I recommend you to read “Valuegrowth Investing” by Glen Arnold in which Professor Arnold has written about Warren Buffett, Ben Graham, Peter Lynch, David Dreman, Charles Munger and John Neff, like lecture notes. Instead of reading thousands of pages, you can read all about these investment gurus in one book of 334 pages.

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