- Warren Buffett released his yearly letter to Berkshire Hathaway shareholders.
- The investor warned that frenzies around fad stocks eventually fade.
- Buffett also discussed bonds, trading fees, and America’s wealth generation.
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Warren Buffett described how hype around “hot” stocks can evaporate, reminded stock traders that their transaction fees fill Wall Street’s coffers, and celebrated American prosperity in his annual letter on Saturday.
The famed investor and Berkshire Hathaway CEO also joked about his age, bemoaned the outlook for bond investors, and admitted to overpaying for Precision Castparts in 2016.
Here are the best quotes from Buffett’s shareholder letter for 2020, lightly edited and condensed for clarity:
1. “Precision Castparts is far from my first error. But it’s a big one.”
2. “Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide. At a point, the soaring price of a promoted stock can itself become the ‘proof’ that an illusion is reality. Eventually, of course, the party ends, and many business ’emperors’ are found to have no clothes.”
3. “In contrast to the scoring system utilized in diving competitions, you are awarded no points in business endeavors for ‘degree of difficulty.’ Furthermore, as Ronald Reagan cautioned: ‘It’s said that hard work never killed anyone, but I say why take the chance?'”
4. “Bonds are not the place to be these days. Fixed-income investors worldwide – whether pension funds, insurance companies, or retirees – face a bleak future.”
5. “Since our country’s birth, individuals with an idea, ambition, and often just a pittance of capital have succeeded beyond their dreams by creating something new or by improving the customer’s experience with something old.”
6. “In its brief 232 years of existence, there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking.”
7. “Mrs. B, it should be noted, worked daily until she was 103 – a ridiculously premature retirement age as judged by Charlie and me.” – joking about Rose Blumkin, who sold Nebraska Furniture Mart to Berkshire in 1983. Buffett is 90 and Charlie Munger, his business partner, is 97.
8. “At Berkshire, we have been serving hamburgers and Coke for 56 years. We cherish the clientele this fare has attracted.” – referring to investor Philip Fisher’s advice to public companies to be consistent in their actions and communications if they want to attract a certain kind of shareholder. Fisher compared it to restaurants serving either hamburgers and Coke or French cuisine with exotic wines, but not both.
9. “Investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and ‘stories,’ they will not lack suitors. ‘Technicians’ will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop.”
10. “Investors must never forget that their expenses are Wall Street’s income. And, unlike my monkey, Wall Streeters do not work for peanuts.” – Buffett said a monkey who picked 50 S&P 500 stocks to purchase by throwing darts at a board would make money, as long as it resisted making changes to its portfolio.