My Take on Warren Buffett’s Shareholder Report dated March 4, 2014

I was excited to read Warren Buffett’s shareholder letter that he recently released. He issues these shareholder letters once a year, typically on the first Saturday of March. These letters are worth their weight in gold to anyone who is an investor or is interested in learning about investing. I really feel that this year’s letter contains some great information, and I am excited to share my thoughts about it. I broke the letter down into five main categories that I think Warren Buffett really speaks truth about. Buffett covers some investing basics and investing rules, he validates the principle of buy and hold, he castigates Wall Street, and he briefly speaks about America’s long-term future.
Buffett first defines the “what” and “when” of investing. The “what” is to own a cross-section of good businesses. The “when” is to buy at the right time. Don’t enter the market at a time of exuberance; rather, invest over time if the price is really high. Just make sure that you don’t sell at a time of bad news or when the stock is way down.
Next in his letter Buffett explains several rules of investing. Primarily, make sure you buy at a fair price. Remember that any company’s value is based on its future productivity, its earnings, and not on the current price of its stock. The goal of an investor is to buy low and to sell high. Regretfully, too many investors do exactly the opposite of this. In Buffett’s letter, he tells great stories about buying a farm and buying real estate, and he then explains that he looks at those two things exactly the same way as he does buying stocks. Investing is investing. Buffett reminds his shareholders, though, to stay in their circles of competence. Stay in areas in which you can value the company and have a good feel for what future earnings are. I personally think, looking at the prices of some companies, that it’s hard to explain their high prices as anything other than irrational exuberance. That’s why it’s important to stay in your circle of competence and value companies based on their future earnings. These truths apply whether you’re buying a farm, a company, or stock in a company. You need to evaluate whether whatever you’re buying will be making money five, ten, or twenty years in the future.
I also think that Buffett validates buy and hold through his shareholder letter. Buying and holding basically just means to buy good companies at a low (or at least a fair) price and hold on to those companies for a long time. Buffett distinguishes this method from the method of the traders who are buying and selling every day because they think they know what will happen in the short term. He makes the point that even he doesn’t know what will happen in the short term. If he doesn’t know, I know that I don’t know, and you probably don’t know either! This is why its important to buy stock at a fair price and then hold on to it for a long time. Nobody really knows what is going to happen in the short term.
Buffett also talks about the harms caused by Wall Street and by stockbrokers. He makes the point that you and I and everyone need to ignore the noise and the market fluctuations. He makes the point that a “flash crash” doesn’t harm a long-term investor. (Again, this is another reason to hold onto your stock!) He also argues that you need to minimize your investment costs by watching “frictional costs” and complexity. The people that are pushing you to make a lot of actions and to invest in complex companies are the people who will most benefit by you doing so. They’re working for their best interest – not for yours! Don’t lose heart at this, though, for Buffett also offers the encouragement that you don’t have to be an expert in order to achieve satisfactory investment returns. He asserts that an investor who is not a professional or a speculator is not at any disadvantage. The professionals and the speculators are buying based on all the Wall Street noise, but all you have to do is buy good companies and hold on to them through thick and thin. Ultimately, you’ll do much better that way.
The final point that Buffett makes in his shareholder pertains to America’s positive long-term future. He says, and I certainly agree, “American business has done wonderfully over time and will continue to do so.” He’s talking about long periods of time, not what might happen this week, this month, or even this year. He’s talking about twenty or fifty years from now. That’s why I think it’s so important that you buy good companies, and hold them as long as they continue to be good companies. (Some companies were good twenty or fifty years ago and aren’t even around today, so you need to watch that.) With these truths that Buffett talks about, you can minimize your cost and even minimize the amount of time that you spend investing – it’s really not that complicated.
So that’s how I categorize Buffett’s annual letter. If you’d like to read it yourself, all of his shareholder letters are posted at
I also invite you to go to and get my free report: “The Five Steps to Financial Independence.” I’ve got some additional tips on my site concerning investment and building net worth that may be of benefit to you. I look forward to helping you become both a better investor and, as a result of your investing, more financially independent.

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