It’s time of the year when Warren Buffett comes out with his annual letter to shareholders (Letter 2012). As always, it’s full of insights into the mind of Oracle of Omaha. An interesting point (on Value) made by Warren in the latest letter is –
“If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.”
So what can a Stable Investor learn from this quote?
- If you have time and can invest for decades (if not years), then you should pray for bear markets. Bear markets offer shares of beautiful businesses at delicious valuations! Though short term rise in share prices may make us happy, one must not forget that for a long term investor, these are just paper profits!
You can read key takeaways from the letter here, or if you are an ardent fan of Warren Buffett, then you may like to go through the entire letter yourself (Warren Buffett’s Annual Letter to Shareholders 2012).
You can also read previous letters to shareholders.
Caution – Though these letters may make it look easy to earn high returns in market, the fact remains that we are not Warren Buffett(s)! 🙂