As Warren Buffett does every year, he released the Berkshire Hathaway letter for shareholders this month.
As always, it's full of Value Investor value but I boiled it down to 3 take-aways, 3 lessons that, especially in this environment of instability and risk, are important to review and internalize.
If you want to read the highlighted letter from Buffett, here it is:
You can read or watch the video:
The Warren Buffett lessons 2022:
So Today, I want to write about the three lessons we can learn from Warren Buffett.
The first lesson that I think it's important for us to know is don't try to time the market. And he went over it at the beginning of the, of the letter, right. It's kind of implicit because obviously Warren Buffett = Value Investor. Doesn't try to time the market.
Lesson 1: Don't try to time the market
He picks businesses, not stocks. And we're going to go over that in a second, but if you go over the first page of the letter, he goes over how he has done since 1965. And I think it's very interesting because he has done 20% in 1965, 20% CAGR but if you look closer and you look to 1990, 1999 and in 2015, because I wanted to do the video outside of my house. I put it on a note and he told me all destroyed now. But anyway, if you look at just those three dates on the letter and I'll put them here, if I remember, you see that the market did much, much better than Warren Buffett in some cases, 20% better.
In some cases, the market was positive for that year and Warren Buffett lost 20% 12% and you go like, wait, that's the best investor in the world. He has done 20% CAGR since 1965. How come? How is that possible? Well, one has to learn that not everything's going to go your way.
One thing is the market. And the other thing is the value short term the market is not rational. Long-term thankfully it is that's the first lesson I wanted to talk about. And the second lesson is Cash is king. So Warren Buffett talked about, he doesn't ever want to depend on other people's money for Berkshire Hathaway or how the business is going.
Lesson 2: Cash is King
If the business goes through a bad year, he doesn't want us to worry about, he wants to sleep soundly. He wants us to sleep soundly. So he already with Charlie Munger, they already said that they will always have at least 30 billion in cash and cash equivalents. Now they have over 140 limits. If I had 144 billion now in cash and cash equivalents.
So they have us treasuries 120 billion, they have there because they have first, they don't, they haven't found a good place to put it in, which is not shocking. The market has been on a, on a tear going up and up and out for years. So it's hard to find value real value with the stock market.
Now. The 30 billion minimum. That's an interesting thing to contemplate and ponder upon because
A friend of mine just asked me, sends me a WhatsApp and goes like, Hey, NIO is at 22, is it a good buy?.
And I couldn't answer him because. $22 for NIO. Yes, it's down over 50% since its highs, but it's a 30 billion company. They're going to list in the Hong Kong market in a few days. So it might be good, but also it's a company that doesn't make money. And if China, with everything that's happening with Russia, if China tomorrow, sends two battleships to Taiwan and they get sanctioned, NIO is F'd.
So it wouldn't be surprising to see new at $3 if that happened.
So when you're not buying value and especially if you're not buying in a Western economy Europe or US everything's riskier. So you have to be very wary. So when I say cash is king is in times of volatility in times when everything has been going up for years in times of very low interest rates.
Conserve cash because there's going to be a correction. We're seeing a huge correction now. And Warren Buffett after decades of doing this he has 30 billion minimum in cash because he knows once he sees that opportunity, he wants to be able to come in and grab it.
Obviously he's working with A lot of money and he has deals that as retail investors, never going to be able to participate in. But in any case, it's a lesson that I think it's important to draw from the letter. It's a lesson that probably could, could be drawn from the every letter of Berkshire Hathaway.
Lesson 3: Don't pick stocks, pick businesses
And the last one is what I said before. Don't pick stocks, pick businesses. They say that I think on page 4, he's like Charlie and I are not a Warren says this, Charlie and I are not stock pickers. We're business speakers. And that's very interesting because if you think about, let me see down here, this, this is taking much longer than I thought I thought I was going to do the intro and I'm making the whole video now.
So if you're stock speaking, you can only see what are you going to pay attention to? The accounting PEG, PE, all the ratios that you can imagine you can pay attention to. But if you're thinking about investing in a business, instead of just a stock long-term, you're buying, like if you're buying a piece of real estate that you don't care about the daily price, because you know, you're going to buy value.
Imagine you buy an apartment or an apartment complex, and every day you get the price of that apartment, depending on the weather, that wouldn't make sense. And that's basically the stock market. When you "stock pick" instead of "business pick". So picking businesses means you have to pay attention as well to management.
You have to pay attention. How long has the CEO been there? How long is the CFO, COO, management? , if the CEO was changed was in the ranks or outside sourced, eh, how are the people feeling about it? How is Glassdoor rating that company to work. Where, where the company is, if the us or China, the regulatory environment, many, many things outside of just the accounting and some ratios that we usually see in trading platforms.
So I think that's the third, big lesson to draw from the Warren Buffet's letter. Like I said, it's a wonderful read.
Other Notes on the letter
There was some curious stuff in, at the beginning, very patriotic, which we're not used to seeing Warren Buffett, that patriotic he's always been very into the U S and everything, but, you know, they've bought a lot of her their funds.
They bought a lot of Japanese stocks. so it was interesting to see how patriotic he was talking about. There's nothing better than the U S very American centric but it's normal. And the U S has done extraordinarily well. But it was strange. It felt a little forced to me, but Hey, to each their own.
Also he made a lot of effort in telling everybody how much they pay to the government as taxes. And because a lot of his quotes have been out and about for years about how he doesn't like paying less than his secretary, but he goes over and goes like, Hey, in 1965, the company was paying easily, a hundred dollars a day to the us government is taxes. Now we're paying, I think it's 9 million, but I don't have it here. So I read it this morning. So I don't remember exactly the number.
But he made a point to tell everybody that we're paying a lot of taxes. And I guess it's just too, he's a smart man, just to hedge against the woke culture in case somebody goes like, Hey, you have Coca-Cola, which is unhealthy insurance groups, which are not the favorite kind of business for, for, for people in general, you have banks, which people usually hate, you know?
So he wanted to let everybody know first that they have a lot of real estate that they pay a lot of tax. And and yeah, so I think it was a very interesting letter. I usually have two letters that I read religiously Howard marks and Warren buffet. And this one was super easy to read super fast.
The last two pages are just a very nice story of a CEO of a company that he acquired, like Berkshire acquire a few years ago. Very nice, very well-written. And as always, I'm looking for, for the press conference, you know I think it's going to be the 29th of April if I'm not mistaken, but in a case a Warren Buffett is the best, the goat.
So yeah, those are the three lessons I took from the letter.
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