Billionaire Warren Buffett is reflecting 249SHPHAUAVB on his investment strategy in his latest open letter to shareholders in his Berkshire Hathaway company.
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Buffett is considered a sharp investor with simple principles who has built up a billion dollar empire ranging from property, transport and pharmaceuticals from a standing start.
Buffett’s full message to his faithful shareholders is short, sharp and simple:
- Focus on return not price
- Stay with what you know
- Don’t try to predict the economy or stock market because too many variables come into play
In the letter, Buffett illustrates his points with two property investment examples.
In 1986, he bought a 400-acre farm without knowing too much about farming but enough to realise the farm would stay in profit.
Say no to quick profits
In 1993, he bought a commercial investment property near New York University, knowing the retail units in the property would continue to attract businesses popular with students and knowing an underpriced lease on a large unit would expire within a few years.
In that time, he has never visited the New York property nor had either valued because he has no intention to sell.
“When promised quick profits always say no,” says Buffett. “If you hold shares and see the prices every day tempting you to move your money, stick with it. It’s like having someone stand in the farm yard every day shouting out the property price asking you to sell.
“If you invest for the right reason, stay in for the long term, ignore prices and the returns will be satisfactory.”
Buffett learned his principles of investing from former Columbia University professor Ben Graham’s book “The Intelligent Investor.”
Value investing
He refers to his strategy as ‘value investing’ – meaning the price is right if the long-term return matches the deal.
Investors who don’t have the skills or time to estimate the value of investing should make regular purchases of a low-cost stock index fund.
“Ignore chatter, keep costs down and invest in stocks as you would in a farm,” he said.
“You don’t have to rank as an expert to achieve satisfactory investment returns. If you aren’t, recognise your limitations and follow a course you are sure will work reasonably well.”
Buffett’s Berkshire Hathaway owns more than 80 subsidiaries in industries including Coca-Cola, Wells Fargo, insurance, utilities, railroads, retail and manufacturing.
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