Every year, Warren Buffett writes an annual letter to shareholders of Berkshire Hathaway. This letter typically holds some commentary and reflection by Buffett, and it accompanies the report being provided by the team at Berkshire Hathaway. Usually, the letter is full of gems and wisdom. This year was no different.
In my first read, several things jumped out to me. Each concept is simple enough to understand yet important enough to be singled out. That’s what I will do over the next 2-3 posts.
Instead of writing a long-form post about all of these ideas, I will write a short series. I think these ideas will be easier to retain in smaller chunks, but I also think that each article is important enough to stand alone.
We Own Great Companies
Let’s start from the beginning. One of the biggest truths about investing often fades in our memory over time. That truth is– you are an owner of great companies. Whether you are investing directly in stocks, or if you own funds that own stocks, you are a partial owner in some of the greatest businesses on earth.
When you invest, you need to think like an owner. Here are some snippets of Buffett’s ownership thinking:
“In one hand we own control of many businesses…”
“In the other hand, we own a small percentage of a dozer or so very large and highly profitable businesses…”
“Late in the year, we increased our ownership…”
Warren consistently thinks, acts, and behaves like an owner.
Why is this important?
Owners Behave Differently
With the increase of technology and innovation, investing has truly become accessible to all. Many of the barriers that existed for regular investors in the past have evaporated. Now, most of us can simply pull out our phones and check stock prices, make trades, or monitor our portfolios.
This type of access has created a new ethos for many investors. Instead of ownership thinking, which is long-term, some people are now addicted to the short-term whims of the marketplace. They now think like traders or speculators.
If an investment doesn’t “perform” (and perform being completely subjective), then it must have been chosen in error and immediately discarded. Our true financial goals may take a back seat to performance-chasing or speculative behavior. This isn’t how prudent investors operate.
Here’s what Buffett says about his time horizon–
“Over time, we think it highly likely that gains will prevail – why else would we buy these securities? – though the year-by-year numbers will swing wildly and unpredictably. Our horizon for such commitments is almost always far longer than a single year. In many, our thinking involves decades. These long-termers are the purchases that sometimes make the cash register ring like church bells.”
Ownership thinking requires that investors understand this concept and think differently.
Ownership Pride
“It’s not greed that drives the world, but envy.” - Warren Buffett
This quote wasn’t in this year’s shareholder letter, but I believe it easily could have been. Too often, investors can fall victim to emotions or fads. Sometimes we are even seduced by the boasting of a friend or co-worker, which makes us have FOMO (Fear of Missing Out)... or worse– FOSPDTYGR (Fear of Seeing People Dumber Than You Get Rich).*
Good investors understand that long-term wealth accumulation happens in decades, not days. Whenever the market faces headwinds, rest assured that the brightest minds and business managers are hard at work on those problems.
Mistakes may happen. Sometimes a great process can yield underwhelming results in the short-run. As it turns out, a great process for investing requires both skill and patience. We don’t need to envy those who allow emotions to run their investment portfolios.
This is why we should take pride in owning the great companies of the world. Buffett believes this. You should too.
* Quote originally by Nick Murray in his book Simple Wealth, Inevitable Wealth