The Wisdom of Warren Buffett
Warren Buffett, one of the most eminent investors of our times, recently released his year-end letter to Berkshire Hathaway shareholders. As usual, the Oracle of Omaha's comments are filled with a good deal of wit and candour. Where else could you hear a Fortune 500 CEO say he enjoys issuing new stock "about as much as we relish prepping for a colonoscopy"?
Berkshire Hathaway is a conglomerate that Warren Buffett manages. Simply, it holds investments in other companies. And these companies' values go to individual shareholders of Berkshire Hathaway. In this way, Berkshire Hathaway is like a mutual fund - one entity that holds shares in other entities, to the "mutual" benefit of its shareholders.
One of the most valuable investing tips reiterated by Buffett in this and previous letters is this:
When you invest, you own long-term businesses
Berkshire Hathaway owns other businesses, such as Coca Cola, GEICO, General Electric, Goldman Sachs, Proctor and Gamble, and Burlington Northern Railway. They are all businesses.
Buffett once said, "As far as I am concerned, the stock market doesn't exist. It is there only as a reference to see if anybody is offering to do anything foolish."
He still means it, and all you need to do is read the first page of
"Year-to-year market prices can be extraordinarily erratic," writes Buffett. "Even evaluations covering as long as a decade can be greatly distorted by foolishly high or low prices at the beginning or end of the measurement period."
Similarly, Buffett isn't concerned with what an individual stock's price has done in the past month or year, or even the past few years. Instead, he looks at the long-term prospects of those businesses.
So why, as investors, do we measure the stock price or the unit price of a fund as an assessment of how well we are doing?
Buffett does not do that. We should be more concerned about how the underlying businesses are doing and if their net worth is growing, rather than the day-to-day price gyrations.
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