Warren Buffett's latest letter Berkshire Hathaway Inc shareholders

The latest letter written by Warren Buffett to the shareholders of Berkshire Hathaway Inc can be downloaded from here.

Relevant excerpts:

"The bet illuminated another important investment lesson: Though markets are generally rational, they
occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential."

Terrible mistake to invest in Bonds

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.

By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a long term investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would have decreased the purchasing-power of the government bond that Protégé and I sold.

I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college
endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.

 

Warren Buffett - Advice for Entrepreneurs

Warren Buffett, Berkshire Hathaway CEO , talked about his personal experience in business and gave advice to small business owners.

Warren Edward Buffett is a business magnate, investor, and philanthropist who serves as the chairman and CEO of Berkshire Hathaway