Warren Buffett’s 2013 annual letter to Berkshire Hathaway shareholders is out. The ‘Mother Lode’ Of Investing Opportunities Is Right Here In America

WARREN BUFFETT: The ‘Mother Lode’ Of Investing Opportunities Is Right Here In America

SAM RO MARKETS  MAR. 1, 2014, 9:31 PM

In his just-released annual letter to Berkshire Hathaway shareholders, Warren Buffett updates us on his merger and acquisition activity.

“While Charlie and I search for elephants, our many subsidiaries are regularly making bolt-on acquisitions,” he said. “Last year, we contracted for 25 of these, scheduled to cost $3.1 billion in aggregate. These transactions ranged from $1.9 million to $1.1 billion in size.”

There are obviously big opportunities to buy companies around the world. Many look to emerging markets like China where growth is hot.

But Buffett has his eyes domestic.

“Our subsidiaries spent a record $11 billion on plant and equipment during 2013, roughly twice our depreciation charge,” he said. “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.”

 

LIVE: Warren Buffett’s 2013 Letter To Shareholders Is Out

SAM RO MARKETS  MAR. 1, 2014, 8:58 PM

Warren Buffett’s 2013 annual letter to Berkshire Hathaway shareholders is out.

Q4 financial results are out. Berkshire reported operating earnings of $2,297 per share, beating estimates calling for $2,204 per share.

Earlier this week, Buffett gave Fortune Magazine an exclusive excerpt from the letter. In it, he discusses two past property investment he had made. The first was a 400-acre farm in Nebraska, which he paid $280,000 for in 1986. The second was retail property near New York University in 1993.

Both investment were made after prices collapsed.

“Income from both the farm and the NYU real estate will probably increase in decades to come,” he said. “Though the gains won’t be dramatic, the two investments will be solid and satisfactory holdings for my lifetime and, subsequently, for my children and grandchildren.”

Buffett bulleted five fundamentals of investing, which we paraphrase:

“You don’t need to be an expert in order to achieve satisfactory investment returns.” But Buffett also warns that the investor should recognize her limitations and “keep things simple.

“Focus on the future productivity of the asset you are considering.” Buffett notes that no one can perfectly forecast the future profitability of an investment. “[O]mniscience isn’t necessary; you only need to understand the actions you undertake.”

“If you instead focus on the prospective price change of a contemplated purchase, you are speculating.” Buffett has nothing against price speculation. But he emphasizes that it’s important to be able to know the difference between investing for the productivity of the asset versus investing on hopes that the price of the asset changes.

“With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.” In other words, focus on the long-run.

“Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important.” So mute CNBC, Bloomberg TV, and Fox Business. Unless Warren Buffett comes on.

Buffett open this excerpt with this quote from his mentor Columbia University finance professor Ben Graham: “Investment is most intelligent when it is most businesslike.”