Berkshire Hathaway, the company owned and operated by Warren Buffett for more than five decades, saw a jump in net worth during 2015 by 15.4 billion, despite all investors are facing a tough environment last year.
As usual, Warren Buffett has just published his annual letter to shareholders. You may not own his company's stock, but you can still benefit from his opinions. In the past decades, he follows the same common-sense investment philosophy, and shares the “secrets” to everyone. In such a volatility market, we should review some lessons from Warren Buffett.
Stay sane while others go crazy
When we talk about Buffett, we should not forget his famous word. “Be fearful when others are greedy and greedy when others are fearful”. His partner, Munger believes it is Warren Buffett's competitive advantage. The average investor can expect to see at least four or five serious market dislocation in their lifetime. However, the challenge is to have the mental fortitude to take advantage of them.
Don't do dumb thing
Berkshire Hathaway's insurance float continues to touch a record high, which provide a financial leverage to magnify returns and also relatively inexpensive financing. As a result, insurance is the first primary advantage for Buffett's company. Buffett especially point out insurers should not chase market share through aggressive underwriting. In an unfavorable pricing environment, the rational thing to do may be just to sit on the sidelines.
During the election year in the US, many candidates talk about problems that the country is facing. Many people worry that their children may live as well as they themselves do. In this shareholder letter, Buffett suggested this view is dead wrong. American GDP per capita is a six times the amount in 1930. Buffett also noted that it's been a terrible mistake to bet against US for the past 240 years. America's golden goose of commerce and innovation will continue to lay more and larger eggs.
Last but not the least, it is not hard to understand Warren Buffett's investment philosophy, but the key point is stick to it.