Six Insights from Warren Buffett (plus a couple of caveats)

Genius at Work

Warren Buffett’s annual Berkshire Hathaway shareholder letter provides insight into investment strategy worthy of consideration by all investors. This year’s letter, celebrating the 50th anniversary of Berkshire Hathaway under Mr. Buffett’s management, is no different. The following six insights may prove especially valuable to the individual/independent investor.

1. Stocks offer better long-term inflation protection than interest-bearing securities.

Chasing Performance : Don’t Trip on International Stock Funds

Chasing Performance : Don’t Trip on International Stock Funds

Over the past five years, US stocks have trounced foreign stock performance. In case you are now considering a reduction in your foreign stock holdings, let’s take a moment to examine performance-chasing and the benefits of global diversification.

Sensible investors pursue diversification as a policy to reduce risk, not as a tactic to chase performance. By following a disciplined policy of maintaining a well-diversified set of portfolio exposures, regardless of market zigs and zags, investors establish conditions for long-run success. In fact, when taking market conditions into account, investors increase the odds of success by diversifying into asset classes after they suffer poor performance. In any case, foreign equities provide an important tool for reducing portfolio risk without sacrificing expected returns. – David Swensen, Unconventional Success: A Fundamental Approach to Personal Investment

Financial News Headlines Undermine Investing Patience

As-seen-in

 

A case study in just how easily the media’s headline predictions and warnings can mislead is attached in the essay below. In this essay, Weston Wellington reveals the difficulty of achieving superior investment performance by connecting the economic and financial news dots from 2014.

In an above-average, Lake Wobegon world, financial news would give us a leg up. The reality is that most of what passes for news has been anticipated or acted upon by a lightning-fast trader. This “news” offers no advantage. Better to think like Warren Buffett: have a strategy and exercise patience in executing it. A few pithy Buffett quotes illustrate the idea:

chavez1Parallel to the fascinating economic landscape of Venezuela are physical beauty, friendly people, and delicious food. However, State Department travel warnings about the prevalence of kidnappings and violent crime gave us second thoughts prior to our departure.

Even though our itinerary concentrated mostly on remote, untraveled areas of the Andes and avoided Caracas, reactions from my wife’s colleagues—particularly those from Latin America—not only gave us pause but precipitated a phone call to our tour operator about the trip’s safety. She assured us that she had seen no problems in twenty years of running trips and that we were in good hands with our experienced guide and our veteran driver. The risks seemed minimal.

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