This week Brian summarizes the 2011 and 2012 Letter to Shareholders from Berkshire Hathaway. He notes that consistency is key when investing, especially during times of uncertainty. We also give you a rundown of the article: 10 ways to wipe out your retirement savings, by Dana Anspach, a fee-only advisor out of Arizona. Dana does a great job on each of her ten points, and we feel like this is a must read for everyone.
2012 Letter to Shareholders highlights:
- “American business will do fine over time. The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions. And don’t forget that shareholders received substantial dividends throughout the century as well.”
- “It’s a terrible mistake to try to dance in and out of the market. The risks of being out of the game are huge compared to the risks of being in it.”
- “In 1942, each day’s headlines told of more setbacks. Even so, there was no talk about uncertainty; every American I knew believed we would prevail.”
- “On an inflation-adjusted basis, GDP per capita more than quadrupled between 1941 and 2012.”
In short, we agree with Warren, it’s better to be in the game than on the sidelines. Have a plan and stick to it, and try to minimize all of the noise that is so common.
2011 Letter to Shareholders highlights:
“Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.” This is the perfect example of Deferred Gratification. “Investing categories are both many and varied. There are three major categories, however, and it’s important to understand the characteristics of each.”
- “Currency-based investments are thought of as ‘safe.’ In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.” While liquidity is important, inflation can eat away the purchasing power of your cash.
- “The second major category of investments involves assets that will never produce anything, but are purchased in the buyers hope that someone else – who also knows that the assets will be forever unproductive – will pay for them in the future.” The prime example here is gold. You can store as much as you like for as long as you like, when you return the same gold will still be sitting there, having done nothing to increase its value.
- “Our third category: investing in productive assets, whether businesses, farms, or real estate. Our country’s business will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial ‘cows’ will live for centuries and give ever greater quantities of ‘milk’ to boot. Their value will be determined not by the medium exchange but rather by their capacity to deliver milk. Proceeds from the sale of milk will compound for the owners of the cows, just as they did during the 20th century.” This ties perfectly with the uncertainty of the markets that we have seen plastered on the news. We feel that to be a successful investor, you need to have a plan and more importantly you need to stick with it.
10 ways to wipe out your retirement savings:
- Believe in a stock
- Buy an annuity – as an investment
- Get reeled into real estate
- Follow a tip
- Changing lanes – every year
- Play the currency card
- Follow your ego
- Follow their ego
- Leverage up
- Mistaken motives
Check out Dana’s article to read how each of these topics can affect your portfolio.