A letter a day!

A letter a day.

Letter #10 Half Yearly letter (1964)

Key learnings:

1. While making an investment, keep buying a stock patiently with improving earnings, increasing asset values etc. Even if the market price is not moving, keep acquiring it. This will not do much for a short term performance, especially in the rising market, but it is a comfortable and logical producer of longer term profits.

2. In the general category ( As earlier explained in the letters, general category of stocks means where there is no special situation and it is even not expected to take control or ownership of the companies) always expect market to justify your analyses in a reasonable period of time .

3. It is also many a times difficult for respect investment management company to beat the unmanaged index of blue chip stocks. Quoting Buffett here

“When the water (the market) rises, the duck rises; when it falls, back goes the duck. SPCA or no SPCA, I think the duck can only take the credit (or blame) for his own activities. The rise and fall of the lake is hardly something for him to quack about.”

( Duck here refers to the investment management companies).

He also says that that investment managers spend considerable amount of time studying a particular sector/company, but at the same time they should also establish certain standards of performance , and regularly and objectively, study their own results as carefully as they study their investments.

4. Comparison of your performance with good mutual fund scheme or index ( For a three a year or a longer period) in no way will guarantee good results but it merely guarantees obejective evaluation. As Buffett has written

” We started out with a 36-inch yardstick and we’ll keep it that way. If we don’t measure up, we won’t change yardsticks. In my opinion, the entire field of investment management, involving hundreds of billions of dollars, would be more satisfactorily conducted if everyone had a good yardstick for measurement of ability and sensibly applied it. This is regularly done by most people in the conduct of their own business when evaluating markets, people, machines, methods, etc., and money management is the largest business in the world.”