What's going on?
Legendary investor Warren Buffett published his widely read annual letter to shareholders on Saturday (tweet this), and it had a few pertinent lessons for all investors.
What does this mean?
Buffett is known for his folksy advice and relatively simple, but very successful, business adages. This year’s letter didn’t depart dramatically from that tone. He extolled the virtues of things like having a competitive advantage: when a business does something better than others, it is able to grow its market share while maintaining its profitability (i.e. margins).
Buffett also repeated his advice to be fearful when others are greedy and vice versa. As always, he didn’t make any predictions for the market’s short-term future, but he did say that investors should look at any big selloff as an opportunity to invest.
Why should I care?
For you personally: One of the world’s greatest stock pickers is a fierce advocate for investments that simply track the performance of the overall market.
Buffett said that, in his lifetime, he has identified “ten or so professionals” who can consistently perform better than the overall market. He chastised professional money managers for profiting from high fees paid by their clients. Buffett’s advice to investors is very simple: buy low cost investments that specifically aim to match the market’s overall return, e.g. ETFs.
The bigger picture: Over time, the economy grows and stocks benefit.
Buffett predicted that his investment gains would continue to be “substantial” in the coming years and the “miraculous” US economy would be the driver. He has traditionally invested in well-run companies that are heavily tied to the US economy, like insurance providers, banks and consumer goods companies. This strategy has served him well over the years primarily because the US economy has performed quite well (despite lower than average growth since the financial crisis). There’s no sign that, over the long-term, the efficacy of that strategy will deteriorate.