Berkshire Hathaway released its annual letter this past weekend. Warren Buffett began the letter with a nice tribute to Charlie Munger.
The tribute may be the first lesson from the letter on humility and the importance of having a great partner, which I urge you to read (find a link at the end). The rest of the lesson from this year’s letter can be found below. Let’s dive in.
Markets and Fundamentals Fluctuate
I can’t remember a period since March 11, 1942 – the date of my first stock purchase – that I have not had a majority of my net worth in equities, U.S.-based equities. And so far, so good. The Dow Jones Industrial Average fell below 100 on that fateful day in 1942 when I “pulled the trigger.” I was down about $5 by the time school was out. Soon, things turned around and now that index hovers around 38,000. America has been a terrific country for investors. All they have needed to do is sit quietly, listening to no one.
It is more than silly, however, to make judgments about Berkshire’s investment value based on “earnings” that incorporate the capricious day-by-day and, yes, even year-by-year movements of the stock market. As Ben Graham taught me, “In the short run the market acts as a voting machine; in the long run it becomes a weighing machine.”
What the market does over days, weeks, and months often diverges from how it performs over decades. The contrast becomes obvious when you zoom out. As Buffett explains, the solution is often best to ignore the short-term swings that cause investors to act against their long-term best interests. Continue Reading…
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