The Latest Investing Insights from Warren Buffett

The latest annual letter from Warren Buffett to shareholders of BerkshireHathaway was posted on Saturday. It was promoted in advance as being a special letter since it is the 50th such missive from Buffett. It does contain some interesting surprises such as Buffett’s unbridled optimism about the u.S. and the U.S. economy, chastising those who become optimistic about the country’s future in the face of short-term problems. He also discusses somewhat how his and the company’s investment strategy changed over the years from buying public company stocks to buying large businesses and holding them. He also repeats his case for long-term investing, among other things in the letter.

If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may, ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (The S&P 500 was then below 700; now it is about 2,100.) If not for their fear of meaningless price volatility, these investors could have assured themselves of a good income for life by simply buying a very low-cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure). Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do.