Warren Buffett’s 2007 letter to shareholders
moneyrelations :: Mar.03.2008
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I suspect the latest Warren Buffett annual letter to shareholders will be dissected ad nauseum over the next few days but I wanted to pay my respects to the dead horse by writing its obituary.
I don’t think Buffett offers any new investing lessons that he hadn’t preached before, but it is a reminder on Berkshire’s rules for investing:
a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag
On page 5 of the letter, Buffett explains once again the concept of moats to protect a business. For the buy and hold investor, this is a must read over and over again. It might be hard to find companies that meet all these criteria but look at the patience Berkshire maintains with its $44 billion in cash.
If you don’t have the chops to pick stocks yourself, take heart. The chances are that most investment advisers don’t either. Here are some interesting observations made by Buffett on the concept of compound returns…
The Dow had an annual compound gain of 5.3% in the 20th century – advancing from 66 to 11,497. In order to match this return by Dec. 31, 2099, the Dow would need to hit 2,000,000. Is it possible? Sure, anything is possible but beware of the investment adviser who promises double digit returns as here are the numbers:
people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100.
And this is not taking into account the percentage taken by management fees.
We are 8 years into the new millennium and the Dow is hovering around 12,300.
You’ve got to hand it to Buffett, he has a way of putting things into perspective.
This is not to say you shouldn’t invest in stocks but beware of the fees involved and have realistic expectations. If you’re a “regular” investor, you might be better off with low cost index funds.
There are just so many more observations and fun anecdotes that Buffett provides but it’s for an educational purpose as well. Warren Buffett’s 2007 annual letter to shareholder is a must read for all investors.
In the news, Investing, Warren Buffett ::
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thanks for the heads up on this. I’m going to get a cup of tea and read his letter. You know, I can’t imagine a world without him in it. He’s like this wise uncle to all of us, isn’t he?
Hey Nancy,
That certainly is the image he cultivates but I’m sure he’s also a very shrewd man. Still, there’s no denying that he brings a lot of old school charm that is apparent when he speaks or that is evident in his writings. Obviously he’s an investing genius but I also think his cult following is due to the fact that he conveys his messages so well – in simple terms accessible to everyone. Is he a brand himself?
after reading this, my first, Buffett newsletter, (and it doesn’t hurt that he’s now officially the richest man alive) i’m convinced that you can’t go wrong by investing in Berkshire.. i know that’s a blanket of a statement, but you really are hiring a genius to take care of ur money.. BRK.B is definitely gonna be on my shopping list during my next round of stock shopping!
Hey Adil,
It’s come down a bit ever since he announced a drop in Q4 profits. I still haven’t pulled the trigger but I wish I had. The jump from the past July has been a nice pop.