Warren Buffett often has sage wisdom to share with investors - not least in his annual note to Berkshire Hathaway shareholders.
This year’s golden anniversary address concerned a misty-eyed reminiscences of fifty years of the company, it’s ups and downs (mostly ups) and the future 50 years ahead.
The note is also full of pearls of wisdom from one of the most successful ever investors who is a multi-billionaire.
Here are five of our favourites.
Some people think it’s bad to have cash laying around, an “unproductive asset that acts as a drag on such markers as return on equity.”
Nope. Not for Buffett.
“Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent,” he says.
This is evident in September 2008 when overnight, “many long-prosperous companies suddenly wondered whether their checks would bounce in the days ahead… their financial oxygen disappeared.”
Not Berkshire, who’s ”breathing went uninterrupted” due to the $20m “and usually far more” it holds in cash. Specifically US Treasury bills.
Referring to Tesco and its issues last year which month by month got worse and worse, Buffett lamented his inability to act fast by selling Berkshire’s large stake in the supermarket when he had “soured” on the company as early as 2013.
He should have taken his own advice.
It may sound cocky, but having overseen a 1,826,163 per cent rise, Buffett is definitely not over confident in his estimations when he says there is “essentially zero” risk in Berkshire ever having financial problems from any event that happens in the world.
“Berkshire played an important role as a ‘first responder’ during the 2008-2009 meltdown, and we have since more than doubled the strength of our balance sheet and our earnings potential. Your company is the Gibraltar of American business and will remain so.” he told investors.
Although Berkshire has no worry about its exposure to risk, that doesn’t mean it doesn’t exist. And the way to limit exposure according to Buffett is to prepare for anything
Financial markets will regularly become divorced from reality says Buffett “you can count on that”.
Beware the snake oil salesman, he warns: “They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very clever.”