Excerpts from Warren Buffet Letters

So, I decided to share with you some interesting information, knowledge from Warren Buffet Letters since the 1980s. I will be sharing more as I read the letters. The following are interesting ones. Of course, if you need much better understanding and get to learn more, you should read the whole letters. I pretty much enjoy reading each one of them:

1977 letter. 
” We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. 
We want the business to be (1) one that we can understand, (2) 
with favorable long-term prospects, (3) operated by honest and 
competent people, and (4) available at a very attractive price. 
We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term.  In fact, if their business experience continues to satisfy us, we welcome
lower market prices of stocks we own as an opportunity to acquire  even more of a good thing at a better price. “

 

1980 letter
” (We can’t resist pausing here for a short commercial.  One

usage of retained earnings we often greet with special enthusiasm
when practiced by companies in which we have an investment
interest is the repurchase of their own shares.  The reasoning is
simple: if a fine business is selling in the marketplace for far
less than intrinsic value, what more certain or more profitable
utilization of capital can there be than significant enlargement
of the interests of all owners at that bargain price?  The
competitive nature of corporate acquisition activity almost
guarantees the payment of a full – frequently more than full
price when a company buys the entire ownership of another
enterprise.  But the auction nature of security markets often
allows finely-run companies the opportunity to purchase portions
of their own businesses at a price under 50% of that needed to
acquire the same earning power through the negotiated acquisition of another enterprise.)”

1983 letter

“We never take the one‐year
figure very seriously. After all, why should the time required
for a planet to circle the sun synchronize precisely with the
time required for business actions to pay off? Instead, we
recommend not less than a five‐year test as a rough yardstick of
economic performance. Red lights should start flashing if the
five‐year average annual gain falls much below the return on
equity earned over the period by American industry in aggregate.
(Watch out for our explanation if that occurs as Goethe observed,
“When ideas fail, words come in very handy.”)
One of the ironies of the stock market is the emphasis on
activity. Brokers, using terms such as “marketability” and
“liquidity”, sing the praises of companies with high share
turnover (those who cannot fill your pocket will confidently fill
your ear). But investors should understand that what is good for
the croupier is not good for the customer. A hyperactive stock
market is the pickpocket of enterprise.”

 

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