A letter a day!

A letter a day!

Letter #19 1968 ( Half yearly letter)

Key learnings:

1. If you have a heavily concentrated portfolio, the performance in the short run can be volatile in comparison to a highly diversified portfolio.

2. Buffett is known to invest in distressed businesses, take control of the same and make them work efficiently. Such stakes in controlled businesses will not produce visible returns in the short term.

“As I have mentioned before, we cannot make the same sort of money out of permanent ownership of controlled businesses that can be made from buying and reselling such businesses, or from skilled investment in marketable securities. Nevertheless, they offer a pleasant long-term form of activity (when conducted in conjunction with high-grade, able people) at satisfactory rates of return.”

3. In this letter, Buffett also talks about people making money through stock promotions. A similar thing is also being witnessed today, where many are trying to earn by providing stock tips via various social media platforms. (That is why they say in the stock market “History repeats itself”)

“Spectacular amounts of money are being made by those participating (whether as originators, top employees. professional advisors, investment bankers, stock speculators, etc… ) in the chain-letter type stock-promotion vogue. The game is being played by the gullible, the self-hypnotized, and the cynical. To create the proper illusions, it frequently requires accounting distortions (one particularly progressive entrepreneur told me he believed in “bold, imaginative accounting”), tricks of capitalization and camouflage of the true nature of the operating businesses involved. The end product is popular, respectable and immensely profitable (I’ll let the philosophers figure in which order those adjectives should be placed).

Quite candidly, our own performance has been substantially improved on an indirect basis because of the fallout from such activities. To create an ever widening circle of chain letters requires increasing amounts of corporate raw material and this has caused many intrinsically cheap (and not so cheap) stocks to come to life. When we have been the owners of such stocks, we have reaped market rewards much more promptly than might otherwise have been the case. The appetite for such companies, however, tends to substantially diminish the number of fundamentally attractive investments which remain.”

“We live in an investment world, populated not by those who must be
logically persuaded to believe, but by the hopeful, credulous and greedy, grasping for an excuse to believe.”

4. Book Recommendation by Buffett ” The money game by Adam Smith”