8 money lessons to learn from Warren Buffett’s letters to shareholders

livemint.com:

Before taking a big financial bet, one should first learn the basics. From time to time, some investing wizards open their hearts out and share key investing wisdom with the investors at large.

One of the most famous investing legends in contemporary times is Warren Buffett who often shares his wisdom in the famous annual letters to shareholders of Berkshire Hathaway.

Here, we cull out some of the pearls of wisdom from the past three letters and share them here:

A few winners do the trick: Weeds wither away in significance as the flowers bloom. And over time, it takes just a few winners to work wonders. Berkshire Hathway bought shares of Coca Cola in 1994 and American Express in 1995 for $1.3 billion each. They rose to $25 billion and $22 billion and annual dividend rose to $302 million.

Had Berkshire invested the same amount in bonds, the annual income would be $80 million or so, he wrote in the letter.

Long term vision is more important: He mentioned that companies just like governments are supposed to look at the larger picture of the state of affairs.

He wrote that their job is to manage Berkshire's operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company's unmatched staying power when financial panics or severe worldwide recessions occur.

While giving an illustration of the US Treasury, he said that the Treasury received about $32.3 trillion in taxes while it spent $43.9 trillion.

Surplus of liquid assets such as cash: He underscored the fact that Berkshire holds a boatload of cash and treasury bills while avoiding a situation where the company would need uncomfortable cash needs at inconvenient times including financial panics and unprecedented losses.