Lessons from the letters of Warren Buffett
I have a deep love and respect for Warren Buffett, who I regard as many others also do, as the greatest investor of all time. (His retirement really hit hard)
What always fascinated me was his confidence and amazing wisdom as he talked about how he invests and how others should, see for yourself two of my favorite mic-drop responses:
In 1996 a shareholder asked him why at times the company only held 3 stocks.
Buffett responded with an answer about how he invests that I donât think any other investor can get away with: âwe think diversification is, as practiced generally, makes very little sense for anyone that knows what theyâre doing.â Then he added: "Diversification is protection against ignorance."
In the 1993 shareholder letter he said this about the traditional retail investor, "By
periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment
professionals. Paradoxically, when "dumb" money acknowledges its limitations, it ceases to be dumb."
Concentration only makes sense if youâre a know-something investor who knows what theyâre doing and if you donât index funds are the smart choice.
I am reading all his letters again these days and there are so many great lessons to cover like how sustainable ROE growth has strong long-term correlation with share price gains, how companies where little capital is required to run can outperform and how severe business change and exceptional returns donât mix.
I can write many posts unpacking just these 3 headlines (all from 1 letter 1987 BTW) and many more from other letters, with examples he gave, modern time commentary and comparisons from realities today.
And Iâm thinking about a new series: âUnpacking lessons of the Buffett Shareholder lettersâ Would you guys be interested in following along that kind of thing ?
