Buf­fett still of­fers wit, wis­dom

South Florida Sun-Sentinel (Sunday) - - People On The Move - Jill Sch­lesinger Jill on Money

I must be in a nos­tal­gic mood, be­cause just a cou­ple of months af­ter writ­ing about the legacy of John C. “Jack” Bogle, the fa­ther of the in­dex mu­tual fund, I am writ­ing about an­other leg­end, War­ren Buf­fett.

Buf­fett is very much alive and re­cently re­leased the an­nual Berk­shire Hath­away share­holder let­ter to in­vestor an­tic­i­pa­tion and fan­fare. I al­ways en­joy Buf­fett’s peren­nial wit and wis­dom and there are al­ways dis­tinct in­vestor takeaways from the Or­a­cle of Omaha.

Sure the fourth quar­ter was a bad year for stock in­vestors. But for Berk­shire share­hold­ers, the in­vest­ment in Kraft Heinz was a se­ri­ous drag, which along with a few other lag­gards, con­trib­uted to a $25.4 bil­lion loss in the fourth quar­ter and one of Buf­fett's worst years ever.

With­out dodg­ing the loss, Buf­fett en­cour­aged in­vestors to “fo­cus on op­er­at­ing earn­ings,” which were at a record high for the year, rather than pay­ing “at­ten­tion to gains or losses of any va­ri­ety.”

Don’t fo­cus on a bad month, quar­ter or year for your port­fo­lio. Keep look­ing to­ward your long-term goals and fund them ac­cord­ingly.

At the end of the year, there was nearly $112 bil­lion of U.S. Trea­sury bills and other cash equiv­a­lents on the Berk­shire Hath­away bal­ance sheet. Buf­fett ex­plained that un­like the pri­vate eq­uity firms, who are happy to jump into deals re­gard­less of cost, he and his part­ner Char­lie Munger are un­will­ing to pay up for busi­nesses that have just so-so prospects.

Buf­fett said that he will al­ways “hold at least $20 bil­lion in cash equiv­a­lents to guard against ex­ter­nal calami­ties.”

Don’t buy for the sake of buy­ing and cre­ate a fi­nan­cial fortress of six to 12 months of liv­ing ex­penses in cash.

2018 per­for­mance: In­vestor take away: Cash is king: In­vestor take away:

Buf­fett read­ily ac­knowl­edges that he “will make ex­pen­sive mis­takes of com­mis­sion and will also miss many op­por­tu­ni­ties, some of which should have been ob­vi­ous to me.” And yet, Berk­shire’s Com­pounded An­nual Gain from 1965 to 2018 has been 18.7 per­cent vs. 9.7 per­cent gain of the S&P 500 (in­clud­ing div­i­dends).

Play­ing the long game:

Amid all of the noise, your suc­cess should be judged over a long term.

In­vestor take away:

Buf­fett says that he used to worry about govern­ment bud­get deficits and a worth­less cur­rency, but those con­cerns have turned out to be some­what over­wrought.

In fact, over the past near eight decades since Buf­fett made his first in­vest­ment, those who avoided stocks and in­stead turned to gold to pro­tect them­selves against these threats, “would now have an as­set worth about $4,200, less than 1 per­cent of what would have been re­al­ized from a sim­ple un­man­aged in­vest­ment in Amer­i­can busi­ness (S&P 500 In­dex). The mag­i­cal metal was no match for the Amer­i­can met­tle.”

Metal vs. met­tle: In­vestor take away:

the in­dex.

In­vestor take away:

Skip the gold, em­brace

Buf­fett is 88 and Munger is 95, but they have ca­pa­ble vice chair­men in Greg Abel and Ajit Jain. Buf­fett said these 2018 man­age­ment changes “were over­due. Berk­shire is now far bet­ter man­aged than when I alone was su­per­vis­ing op­er­a­tions.”

Not ready to hang it up:

Keep work­ing, but hire good help along the way.

Jill Sch­lesinger, CFP, is a CBS News busi­ness an­a­lyst.

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