Key lessons from letters of Warren Buffett- Part I

by Ankit Jaiswal on Fundamental Analysis
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Are you associated with the stock market? If yes then you must be knowing about Warren Buffett.

He has been writing letters to shareholders since fifties.

If you want to build up a storehouse of knowledge, then you should read the letters of Warren Buffett and reread them to compound your knowledge.

The following points are the key lessons from 1978 letter to shareholder

1. Investing is a long-term game

 Most of us often get very excited when markets move up and the other way round during downturns.

I have seen most of the investing guys tracking markets every single ticker even though they have a long-term view.

Most of the people often start investing saying that they are doing it for the long term but when the market corrects they usually end up selling the stocks.

Warren Buffett disagrees on the same.

He is usually uncertain about the prediction in the short term but he’s confident with the long-term picture.

In his 1978 letter to the shareholders, he said-

We make no attempts to predict how security markets will behave; successfully forecasting short-term stock price movement is something we think neither we nor anyone else can do. In the longer run, however, we feel that many of our major equity holdings are going to be worth considerably more money than we paid

2. Buying a business is a better option than creating one

Creating a business from the very scratch involves a lot of time and effort.

You will find smart people like Buffett and Munger who usually buys a stake in the company when the markets are in the bear phase and everybody avoids the market.

This is the time which creates an opportunity for them to buy good quality businesses at throwaway prices and this is how they are able to build a vast collection of excellent companies in their portfolio.

Warren Buffett in his letter said-

It is not easy to buy a good insurance business, but our experience has been that it is easier to buy one than create one

3. Patience is the key to investing

Most of us lack patience but when it comes to investing in share market, this is something which is of utmost importance.

You may be good at analyzing businesses but the market has a tendency to consolidate for years without doing much movement even in case of blue-chip stocks.

This is the time when you need to be patient as you may be attracted to some short-term opportunities.

Also ReadHow to Invest in Shares: A Beginner’s Guide

Warren- Buffett- quotes

Warren Buffett in his 1968 letter said-

We are not concerned with whether the market quickly revalues upward securities that we believe are selling at bargain prices. In fact, we prefer just the opposite since, in most years, we expect to have funds available to be a net buyer of securities. And consistent attractive purchasing is likely to prove to be of more eventual benefit to us than any selling opportunities provided by a short term run up in stock prices to levels at which we are unwilling to continue buying

4. Margin of safety

You must have come across this term if you are a regular reader of our blog. This concept is of utmost importance if you follow Buffett style of investing.

 The Margin of Safety is a method of buying securities at a significant discount from their underlying values and holding them until more of their value is realized.

The key to this process is to get the securities at bargain prices.

It acts as a cushion to protect the investor against any loss which may arise due to human error, bad luck, extreme volatility etc.

Margin of Safety is important since-

  • Future is unpredictable
  • Investors being a human have a tendency to commit a mistake
    This is an excerpt from the letter to a shareholder which shows his own experience with this concept.

Also Read:  Margin of safety matters!

Buffett said-

SAFECO is a much better insurance operation than our own, is better than one we could develop and, similarly, is far better than any in which we might negotiate purchase of a controlling interest. Yes our purchase of SAFECO was made at substantially under book value. We paid less than 100 cents on the dollar for the best company in the business,when far more than 100 cents on the dollar is being paid for mediocre companies in corporate transactions. And there is no way to start a new operation- with necessarily uncertain prospects- at less than 100 cents on the dollar

To know more about Warren Buffet style of investing you may do: Value Investing Strategies course on

I hope you enjoyed reading the lessons. I would come up with more such lessons in the upcoming blogs.

Happy Learning!!

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  • I believe one must definitely read all the letters to shareholders by Warren Buffett.
    Thanks Ankit for the wonderful concise write-up!

  • Thanks Venkat!
    One should start their investing career by reading all the letters to shareholders as it is a storehouse of knowledge.

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