Top 5 investing lessons from Warren Buffett's shareholders letters 2016
You must be knowing Warren Buffett if you are in the world of investments for quite some time. He is one of the biggest and most successful investor in the world. There isn’t anything more valuable to an investor community (especially long term) than Warren Buffett letters to shareholders. These aren’t any ordinary annual letter of a company which gives updates about business operations and view about the future but a lot more than that. These letters not only covers Berkshire Hathaway’s performance and its future prospect but also contains holy investment lessons and advice. Any aspiring investor willing to build up storehouse of knowledge should surely read and re read the letters to compound the knowledge. Warren Buffett has started writing these letters since 1950’s
Though the full 28 page letter is worth reading but we have highlighted some of the important lessons for the new investors who haven’t read any report before. The following are the key lessons from shareholder letter 2016 by Warren Buffett –
1. Don’t just blindly pay for the brand name or goodwill
Simply buying stocks of companies for the sake of its goodwill or brand value may prove to be a laggard investment in the future. It’s important to understand the company’s growth potential and what it can become in the future. In simple words, it’s a wise to focus on company’s growth prospects rather than its brand name.
Hence, as an investor, it’s really a bad idea to pay a very high price just behind the comfort of company’s reputation and goodwill.
2. Buy stocks during panic and fear in the market rather than selling them
India being an emerging nation is greatly impacted by events both domestic and international. The Indian stock market during geo-political events like Indo-Pak tension or during Brexit referendum saw a good correction in the stock market. Even domestic events affects market in a great way like the one saw few months back due to demonetisation.
Most people during this time was selling in panic following herd mentality but this corrections poses opportunity for long term investors as during such times you get good and fundamentally sound companies at bargain prices. After a good correction post demonetisation, market took a good rally and today made a new high on the back of BJP’s win in Uttar-Pradesh. So if anyone would have bought stocks of sound companies would have made descent gains in the latest rally in last 2-3 months.
3. Ride your country’s growth wave
India as a country has shown a phenomenal growth in the last several decades. India’s GDP has reached whooping $2100 billion in 2017 from a mere $40 billion in the year 1960. Even the India’s stock market index, Sensex has reached 29500 from mere 100 mark in less than 40 years. The governments various infrastructural reforms, building of smart cities, demonetisation step to eradicate black money from the system, internet penetration both in rural and urban areas, more companies are coming up, more and more people travelling abroad etc are nothing but pure growth.
So if you are bullish on the India growth story, why not be a part and enjoy the country’s growth wave by making suitable and appropriate investments.
4. Avoid fear and do not let emotions come in a way of making investments
You will always find media advising to sell during a correction or a fall and gives you a rosy picture when market rally. Though if we are in an uptrend all intermediate corrections are a buying opportunity and all rallies should be a selling one. The media will give you all sort of an explanation and calculation for if and buts.
However, on the other hand, the smart investors generally enters the market at a bear phase when no one is willing to buy and sells when there is an euphoria in the market. Hence, it’s always advisable to avoid all market noise and do your own research.
5. Think long term
Most people in stock market have a tendency to make quick profits and make quick exits. But in making those 10-15% quick profits, we have a tendency to miss the winner ones which later turns out to be a multibagger. It’s always advisable to exit the loss making ones and keep holding the winners unless it stops giving growth.
These lessons are no more than holy lessons to the investor community and it is wise thing to not only read but also implement this is your real life. I hope you enjoyed reading the lessons.
Take care and Keep Learning!!
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