What I learned from Warren Buffett’s 2019 Annual Letter

I first learned about Warren Buffett in 2006 when I picked up the Intelligent Investor. My immature mind discarded him completely as I loved getting rich quick schemes of speculators more. In 2013, after being hit for many years with heavy punches to the gut and receiving the final blow to my head, I decided to study the Oracle of Omaha to understand why he’s been so successful for such a long time while my idol speculators either killed themselves or died poor. The study took months as I poured into his writings and his talks.

The results:

I stopped losing money feeling like a fool and a gambler.
I founded a value investing fund to invest in Vietnamese companies. After 5 years of investing, what I learned from Warren Buffettt and practiced is working wonderfully.
I became more at ease with being myself. The most notable is that I happily live a frugal lifestyle and pay almost no attention to what others say.

Every year at this time, I am eagerly waiting to receive the annual letter from Warren Buffett. Today is no difference. It’s the first thing I looked for when I woke up.

After many tries, I finally could download the letter. There must have been too many people trying to get his letter at the same time since Berkshire Hathaway’s website was extremely slow.

In this letter, Warren Buffett again showed his love for America and his belief in the long-term prospect of America.

Buffett’s buying criteria: “to buy ably-managed businesses, in whole or part, that possess favorable and durable economic characteristics. We also need to make these purchases at sensible prices.“

Buffett has written many times that he paid little attention to daily fluctuation of stock prices, quarterly earning, and even one year earning. What he focuses on is the business and its prospect: “Focus on operating earnings, paying little attention to gains or losses of any variety.”

Next, Buffett gave an outstanding lesson on “Focus on the Forest, Forget the Tree“. Berkshire Hathaway has many different businesses. If taken out to analyze each business, one might be very concerned as there are undoubtedly bad businesses or diseased trees in the forest. And there also are many healthy businesses/trees which will continue to grow in size. Taken as a whole, the forest is booming. “At Berkshire, the whole is greater – considerably greater – than the sum of the parts.“

Will Buffett make more purchases in 2019?
“My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.“

Where have fundings come from?

Debt. Berkshire uses little or no debt though some of its subsidiaries might leverage debt when it makes sense.
Equity. Buffett retained all the earning to invest and compounded it.
Insurance float. Using float to invest has been a cornerstone in Buffett’s compounding machine.
Deferred tax income.

Finally, as usual, Buffett dedicated the last portion of writings to teach. This year, he taught about American Tailwind or his belief in the long-term economic growth of America. This is worth reading several times.

Buffett made his first investment in the stock market with his $114.75 saving at the age of 11. “If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. “

Is Gold safer than stock? If I ask people, the answer is mostly YES. However, history proved that most people are often more wrong than right.
If the same amount of $114.75 was to put in gold, by now it would be worth $4,200. “The magical metal was no match for the American mettle.“

And it’s a dream to say the same: “For 54 years, Charlie and I have loved our jobs. Daily, we do what we find interesting, working with people we like and trust.“

The full letter: http://www.berkshirehathaway.com/letters/2018ltr.pdf