Email of the day on the Berkshire Hathaways Annual Report
Comment of the Day

March 03 2014

Commentary by Eoin Treacy

Email of the day on the Berkshire Hathaways Annual Report

“See attached an excerpt of Berkshire Hathaway’s upcoming Annual Report which appears in the March edition of Fortune Magazine.   As we’ve come to expect Buffet’s musings are always informative.

“He refers to a Vanguard S&P500 Index fund (VFINX) on page 5 which does not appear in the Chart Library.  Is it possible that this could be charted please?”

Eoin Treacy's view

Thank you for this pdf which appeared in Forbes and may be of interest to subscribers. Here is a section:

I have good news for these nonprofessionals: The typical investor doesn't need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th century, the Dow Jones industrial index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st century will witness further gains, almost certain to be substantial. The goal of the nonprofessional should not be to pick winners -- neither he nor his "helpers" can do that -- but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

That's the "what" of investing for the nonprofessional. The "when" is also important. The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. (Remember the late Barton Biggs's observation: "A bull market is like sex. It feels best just before it ends.") The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never sell when the news is bad and stocks are well off their highs. Following those rules, the "know-nothing" investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness.

I have added the Vanguard fund mentioned in this report to the Chart Library. It has an expense ratio of 0.17% and a management fee of 0.14%.

There is little doubt that bull markets are fun for just about everyone with a long position. We spend a great deal of time attempting to ascertain when the next major theme is about to garner investor interest and fuel a successful multi-year advance. However, it is also worth considering that central banks raising borrowing costs and/or surging oil prices represent threats to bull markets when it really would be better to think about waiting for bargains to appear than adding new money. 

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