Join Courses
Attend Webinars
Get Free Counselling
  • Select Language
    • Hindi
    • Bengali
+91 9903 222 555
Elearnmarkets - Financial Market Learning
Join Courses Of Elearnmarkets
  • Basic Finance
  • Technical Analysis
  • Fundamental Analysis
  • Derivatives
  • Financial Planning
  • Miscellaneous
No Result
View All Result
  • Basic Finance
  • Technical Analysis
  • Fundamental Analysis
  • Derivatives
  • Financial Planning
  • Miscellaneous
No Result
View All Result
Elearnmarkets - Financial Market Learning
Home Fundamental Analysis

Key lessons from letters of Warren Buffett- Part II

Elearnmarkets by Elearnmarkets
November 18, 2015 - Updated on November 18, 2020
Reading Time: 5min read
2
3.2k
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

I hope you must have enjoyed reading part I of this series

There are more than 50 letters to date which itself is a warehouse of knowledge and is a good entry point for the first time readers.

I would suggest everyone to read all the letters by carefully reading each and every single word and marking them and making notes in the process.

Following are the key lessons from 1993 letter to shareholder–

1. Market rewards long-term

Stock-market has been paradise for the long-term investors and will continue to do the same.

One or two big stock idea is just enough to change your life over a longer time frame.

One of the key element is the compound interest which plays an important role in building wealth and  is considered to be the eighth wonder of the world by Albert Einstein. 

There has been a number of instances to prove the same and one such event taken from the letters of Warren Buffett is stated below-

Let me add a lesson from history: Coke went public in 1919 at $40 per share . By the end of 1920 the market, coldly reevaluating Coke’s future prospects, had battered the stock down by more than 50% to $19.50. At yearend 1993, that single share, with dividends reinvested, was worth more than $2.1 million. As Ben Graham said: In the short-run, the market is a voting machine- reflecting a voter-registration test that requires only money, not intelligence or emotional stability- but in the long run, the market is a weighing machine

Also Read: Long-term investment – You Reap What You Sow

2. Owning stocks involve the same mindset as owning a business

Equity shareholders are considered to be the part owner of the business, but before associating with the company ( i.e. investing in equity) most of the people hardly carry out any research.

Warren Buffett always says that we should invest in those companies which are easy to understand.

I believe before associating with a company, it’s very important to know that whether you will be able to continue with the business for the long term say 5-10 years if you were the owner.

Warren Buffett in his letter to shareholder said-

In our view, what makes sense in business also makes sense in stocks: An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of the business.

3. Always invest in good quality business

During the bull market, blue chip and good quality stocks are always overpriced.

So people generally invest in cheap stocks (many of them are without any fundamental) in the hope that they will also outperform.

Investing in a good quality business trading at a higher price level is a better option as compared to investing in a poor quality business.

However, investing in a good business at any point in time would fetch you a decent return in the long run.

The 1993 letter to shareholder states- 

Yes, competition there was in 1938 and 1993 as well. But it’s worth noting that in 1938 the Coca-Cola Co. sold 207 million cases of soft drinks and in 1993 it sold about 10.7 billion cases, a 50-fold increase in physical volume from a company that in 1938 was already dominating in its very major industry. Nor was the party over in 1938 for an investor: Though the $40 invested in 1919  in one share had (with dividends reinvested) turned into $3277 by the end of 1938, a fresh $40 then invested in Coca-Cola stock would have grown to $25000 by year end 1993

To know more about Warren Buffet’s style of investing enroll in Value Investing Strategies course on Elearnmarkets.com

4. One good idea a year is enough to make a success

People often run behind every idea and try to grab each and every opportunity.

But I believe generating a few solid ideas and working upon it rigorously is enough to attain success.

Listening to every tom, dick and harry in the market is the perfect recipe of self-doom in the long term.

Warren Buffett in his letter said-

Charlie and I decided long ago that in an investment lifetime it’s just too hard to make hundreds of smart decisions. That judgement became ever more compelling as Berkshire’s capital mushroomed and the universe of  investments   that could significantly affect our results shrank drastically. Therefore, we adopted a strategy that required our being smart- and too smart at that – only a very few times. Indeed, we’ll now settle for one good idea a year.

5. Diversification is not always a better strategy

You must have heard people telling to diversify the portfolio in order to cut down risk.

Diversification implies increasing the number of stocks in the portfolio in order to reduce risk.

I believe diversification is a good idea for an investor who does not understand business economics but wants to invest for a long term.

On the other hand, if you are a know how investor and understand the business economics, then picking up few sensible price companies with long-term competitive advantage is a better idea and conventional diversification really makes no sense.

Warren Buffett in his letter said-

The strategy we’ve adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, bothy the intensity with which an investor thinks about a business.

Bottomline:

We hope that this article has helped you to get a clear grasp of the important lessons from Warren Buffet’s Shareholder’s Letters.

We will write some more articles on other key lessons from Warren Buffet’s Shareholder’s Letters.

Happy Learning!!

Tags: Diversificationenglishgood quality businessLetters of Warren Buffettlong termwarren buffett
ShareTweetShare
Subscribe To Updates On Telegram Subscribe To Updates On Telegram Subscribe To Updates On Telegram
Previous Post

Key lessons from letters of Warren Buffett- Part I

Next Post

Key lessons from letters of Warren Buffett-Part III

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

Financial Statement Analysis

Share Warrants vs Rights Issue – What you should know?

January 15, 2021
12
Fundamental Analysis

Annual Report – Smart way to decode company financial health

December 31, 2020
461
Fundamental Analysis

Buyback of Shares Meaning – Ways, Participation, Pros & Cons

December 10, 2020 - Updated on December 15, 2020
543
Fundamental Analysis

Business Models – Example, Types, Importance & Advantages

November 24, 2020 - Updated on November 30, 2020
549
Next Post

Key lessons from letters of Warren Buffett-Part III

Is Investment Banking a Good Career

Which course to opt for- MBA or CFA?

Comments 2

  1. frolep rotrem says:
    10 months ago

    Good ?V I should definitely pronounce, impressed with your site. I had no trouble navigating through all tabs as well as related info ended up being truly easy to do to access. I recently found what I hoped for before you know it in the least. Quite unusual. Is likely to appreciate it for those who add forums or something, site theme . a tones way for your customer to communicate. Nice task..

    Reply
  2. froleprotrem says:
    10 months ago

    Thanks for ones marvelous posting! I genuinely enjoyed reading it, you’re a great author.I will ensure that I bookmark your blog and will often come back from now on. I want to encourage that you continue your great work, have a nice day!

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Follow Us

Download App

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

GET ARTICLES ON EMAIL

Enter your email address:

Categories

  • Banking
  • Basic Finance
  • Bonds & Fixed Income
  • Budgeting & Savings
  • Capital Markets
  • Charts
  • Charts, Patterns & Indicators
  • Commodity, Currency & FOREX Market
  • Derivatives
  • ETFs & Mutual Funds
  • Financial Planning
  • Financial Statement Analysis
  • Fundamental Analysis
  • Macroeconomics
  • Market Analysis
  • Market Updates
  • Market Wrap
  • Marketshala
  • Miscellaneous
  • Open Interest
  • Personal Wealth
  • Retirement Planning
  • Sector Analysis
  • Tax Planning
  • Technical Analysis
  • Trading Terms, Rules & Strategies
  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

© 2020 Elearnmarkets All Rights Reserved

No Result
View All Result
  • Article Categories
  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Market Analysis
  • Miscellaneous
  • Technical Analysis
  • Select Language
    • Hindi
    • Bengali
  • Learn finance
  • Browse Courses
  • Webinars
  • Free Guides
  • Get Free Counselling

© 2020 Elearnmarkets All Rights Reserved