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5 pearls of wisdom from Warren Buffett's 2014 letter to investors

March 04, 2014 19:24 IST

5 pearls of wisdom from Warren Buffett's 2014 letter to investors

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Warren Buffett has been the most successful investor of the 20th century and his annual letter to shareholder is keenly awaited. The letter has been investment bible for many, as the Oracle of Omaha share his views, experience and style of investing in these.

Buffett’s this year’s letter to shareholders is out. And here are the pearls of wisdom he offers to investors.

Beware of the looming upcoming crisis

“Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans.”

“During the next decade, you will read a lot of news – bad news – about public pension plans. I hope my memo is helpful to you in understanding the necessity for prompt remedial action where problems exist.”

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Image: Warren Buffett, Chairman of the Board and CEO of Berkshire Hathaway, poses for a portrait in New York.
Photographs: Carlo Allegri/Reuters

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5 pearls of wisdom from Warren Buffett's 2014 letter to investors

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America is still a great place to invest

“Our subsidiaries spent a record $11 billion on plant and equipment during 2013, roughly twice our depreciation charge. About 89% of that money was spent in the United States. Though we invest abroad as well, the mother lode of opportunity resides in America.”

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Image: A sign featuring a photo of Chairman Warren Buffett welcomes Berkshire Hathaway shareholders to a picnic during the BH annual meeting in Omaha, Nebraska.
Photographs: Rick Wilking/Reuters

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5 pearls of wisdom from Warren Buffett's 2014 letter to investors

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Don’t panic

“During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And, if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it.”

“So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well. Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?”

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Image: A woman displays playing cards for sale with a picture of Berkshire Hathaway Chairman Warren Buffett as the king of spades at a souvenir stand at the company trade show during the BH annual meeting in Omaha.
Photographs: Rick Wilking/Reuters

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5 pearls of wisdom from Warren Buffett's 2014 letter to investors

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There’s no need to be an expert

“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognise your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.””

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Image: Berkshire Hathaway CEO Warren Buffett spins a basketball on his fingertip with the help of Harlem Globetrotter member Handles Franklin just before the company's annual meeting in Omaha.
Photographs: Rick Wilking/Reuters

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Put your cash in a low cost index fund

Buffett reveals that in his will he has provided for cash to be delivered to a trustee for his wife.

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest  Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors - whether pension funds, institutions or individuals - who employ high-fee managers.”


Image: Berkshire Hathaway Chairman Warren Buffett shouts the slogan "Never give up, Iwaki" in Japanese, in response to a request from a local television reporter.
Photographs: Kim Kyung Hoon/Reuters
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