Warren Buffett’s Letter to Shareholders: 3 Takeaways for Investors

Hey moneyblog,

Every year, Warren Buffett (an investor I greatly respect) releases his letter to shareholders which to me is a must-read for all serious investors.

Here are some extracts from his letter this year and my main takeaways:

1) Know the difference between illusion and reality

"Investing illusions can continue for a surprisingly long time. At a point, also, the soaring price of a promoted stock can itself become the "proof" that an illusion is a reality. Eventually, of course, the party ends, and many business "emperors" are found to have no clothes.

Financial history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by journalists, analysts and investment bankers, but whose creations ended up as business junkyards."

As investors, we need to be able to tell the difference between truly great businesses and those that are artificially inflated because of illusions created by the founder or the media. Can you guess the stocks or assets I am thinking about?

2) Bonds are not the place to be these days

"Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future."

I have said this all along… From a rational point of view, it's unthinkable to own bonds with such low yields. One of the greatest myths told by Wall Street is that bonds are safer than stocks.

3) Berkshire buybacks stocks

Berkshire repurchased about $9 billion of its stock in the last quarter. For all of 2020, Berkshire said it bought back $24.7 billion of its own stock, topping its old record of $5 billion in 2019.

This means that Buffett believes that his company's shares are currently undervalued and it makes sense for him to re-purchase at this time.

A great part of investing success involves constantly learning from other great investors to keep growing and levelling up. How will these lessons impact the way you manage your own investments?

May the markets be with you,

Adam Khoo