A letter a day!
Letter#68 2014
Key learnings:
1.insurance is the sale of promises. The “customer” pays money now; the insurer promises to pay money in the future should certain unwanted events occur.
Sometimes, the promise will not be tested for decades. (Think of life insurance bought by people in their 20s.) Therefore, both the ability and willingness of the insurer to pay, even if economic chaos prevails when payment time arrives, is all-important.
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Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments far riskier investments than widely- diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions.
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Owning equities for a day or a week or a year is far riskier (in both nominal and
purchasing-power terms) than leaving funds in cash-equivalents.
“For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities.”
- When one part of a family wishes to sell while others wish to continue, a public offering often makes sense. But, when owners wish to cash out entirely, they usually consider one of two paths.
1)Sell it to a competitor who can consider it as a synergy.
2)Find out a buyer.
- This is a golden anniversary letter where Berkshire Hathway has completed 50 years. At the end of the annual letter, there is a 22 page note on how the company started, where is it now and next 50 years of Berkshire. Since most of it is a summary apart from the next 50 years part, I have not added it in this letter. For those who want to know, it is a very interesting read.
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