Berkshire Hathaway returned 5,502,284% since 1964 while S&P 500 returned just 39,054%. $Berkshire Hathaway(BRK.A)$ $Berkshire Hathaway(BRK.B)$
He has been giving free investing masterclass in Berkshire Hathaway annual meetings since 1970.
Here's his 10 best nuggets: 🧵
1. The most important thing is the moat.
You should find something that takes disproportionately higher market share than competitors.
It could be because of:
- Brand name
- Lower costs
- Unique product
Then, you have to evaluate whether it's durable.
2.
Buy businesses that have a high return on incremental capital.
Business might have generated a high return on capital in the past but its opportunities may be very limited for the future.
You should buy businesses that can also deploy new capital at high rates of return.
3. Volatility isn't risk.
Risk comes from two sources:
- Business characteristics.
- Not knowing what you own.
It doesn't come from volatility.
4. Intrinsic value is the sum of all future cash flows that can be withdrawn from the business, discounted at an appropriate rate.
It's based on two things:
- How much operating businesses generate.
- How much proceeds from reinvestment will be.
That simple.
5. Insist on a margin of safety.
It's not just a quantitative thing, it's also qualitative.
There are three layers of margin of safety:
- Understanding the business.
- Competitive advantage.
- Fair value.
A prospective investment must have all of them.
6. Don't over-diversify.
Diversification is a measure against your own ignorance.
If you already know what you own, you don't need much diversification.
Nobody ever gotten rich on their 20th best idea many have on their best.
7. Don't wait for a market crash.
If you find a company that:
- Has a durable competitive advantage.
- Trades at or near the fair value.
- Has honest management.
Leave a few percent on the table and buy it now rather than waiting for a crash.
8. If you are managing small sums, invest in smaller companies.
Market tends to misprice smaller companies more often than the big companies.
If you are working with small sums, you should look at them.
They aren't quite common as they used to be but they still exist.
9. There are two conditions for repurchasing shares:
- Shares should be undervalued.
- There should be nothing better to do.
Some companies are just buying back shares to bump up EPS, but if the stock isn't undervalue they actually destroy value rather than create it.
10. Hold forever.
Exceptional businesses are rare, if you find one of them, hold forever.
You should only sell if:
- Price is off the roof.
- There are better opportunities.
- Fundamentals are deteriorating.
Otherwise, you should just hold.
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