Published by Taylor Financial Group
Berkshire Hathaway’s CEO, Warren Buffet, recently issued his closely followed Annual Shareholder Letter for 2017. In his letter, he touched on various topics from politics to the American Economy, hedge fund fees, holding periods and investment styles. Although the Oracle loves to pontificate on many topics, he saved special ire for hedge fund managers, who typically charge “2 and 20” and who he believes are over-paid.
He believes that charging 2% of assets under management alongside 20% of profits is not justified and he made a bet ten years ago to prove it. It looks like he will win that bet, which pitted hedge funds against the Standard and Poor’s 500 Index. Of course, it doesn’t help the hedge funds that they are typically investing with risk sensitivity in mind, and that the time period of the bet covers one of the longest running bull markets in history. Buffett also plugged index funds again, believing that they make sense for the typical investor. We agree, and have been moving more and more of our investments to low cost index funds in order to save our clients money in those areas that make sense and where we are not as risk-sensitive.
Warren Buffet expressed continued optimism about our Nation. He discussed the numerous achievements within America and specifically lauded immigrants, who bring “ambition and talent” to this Country. He felt that our economy is working hard and expressed that many gains were to be seen right in front of us. From plentiful farmlands to the importance of diversity, ambitious immigrant workers, efficient medical centers and factory production, The Oracle of Omaha voiced a great sense of pride for America. He has never wavered from these sentiments and he encouraged others not to bet against America.
Buffet also discussed some important investment concepts. For example, he reminds us that the market fluctuates, and that major declines and moments of panic happen, as history has proven. Stock prices can be reflective of these market shocks. Although some investors may be weary of investing in times of uncertainty, Buffett (and we) likes to view these price fluctuations as a discount. Everyone loves a good bargain, and purchasing companies, while they are discounted, will more than likely be profitable for the investor. In fact, Buffett stated that when times like this occur, “it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
Buffet also discussed his waiting periods, as in the past he would say that he holds stocks “forever.” He still believes in being a patient investor. However, he stepped away from “forever” as the holding period. For example, he recently sold his stake in Walmart, citing the difficult environment for retail operations when competing against the internet.
We can always count on Warren Buffett for his no-nonsense talk and his insights.
Contact us today to discuss your investments and any questions you may have.
Sources:
Investopedia, Warren Buffett’s Annual Shareholder Letter for 2017 (BRK.A, AAPL) by Aaron Hankin, Feb. 25, 2017
Wall Street Journal, Warren Buffett’s Annual Letter: Five Key Takeaways, Feb. 25, 2017
Forbes, The Seven Best Quotes from Warren Buffett’s Annual Shareholder Letter by Antoine Gara, Feb. 25, 2017
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