3 things I learnt from Warren Buffett’s annual shareholder letter

Jon Smith reads the letter Warren Buffett just put out and provides his key thoughts and summary of the investing takeaways to benefit from.

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Warren Buffett at a Berkshire Hathaway AGM

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Each year, billionaire investor Warren Buffett writes a letter to the Berkshire Hathaway (NYSE:BRK.B) shareholders. Given his expertise in running the company for several decades, the letter sheds light on his thinking beyond just the full-year financial figures. There are always plenty of gems to read from the 152-page letter.

Here are three of my favourites.

Buffett favours the US

It was interesting to note that Buffett doesn’t see much opportunity in the UK or anywhere outside the US. He said “outside of the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire”.

I have to take this with a pinch of salt, as the business typically invests billions at any one go. So naturally, it isn’t going to be focused on penny stocks or even relatively modestly-sized companies.

Yet it also shows me that Buffett feels the US is still the place to be. This is shown via the fact that the vast majority of his stocks owned are US listed. This includes the largest holding, Apple, which accounts for around 45% of the investment pot.

The Berkshire Hathaway share price is up 33% over the past year. This reflects the performance of the US stocks it holds within the company. It’s definitely an area I should be exploring more.

Berkshire keeping cash for opportunities

There was a fantastic lesson to be gleaned from his comments about the potential for a stock market crash. He said that “if you believe that American investors are now more stable than in the past, think back to September 2008… such instant panics won’t happen often – but they will happen”.

Although Buffett isn’t exactly calling for a crash, this point highlights that investors shouldn’t get lulled into a false sense of security. The markets might seem to be in a stable place right now, but the global financial crisis in 2008 showed that things can change very quickly.

Therefore, I want to keep some cash on hand to take advantage of any opportunities that come. Berkshire Hathaway reported a cash balance of $167.6bn for year-end. Clearly, the firm has enough dry powder to snap up anything should we get a crash later this year.

Buy traditional

Finally, Buffett shows via his holdings within Berkshire Hathaway that he likes traditional businesses that have proven track records.

He said that “when you find a truly wonderful business, stick with it”. This has been the case for the likes of Coca-Cola and American Express. Yet another case was the stake that Berkshire now has in Occidental Petroleum. The 27.8% stake is large, with Buffett highlighting that he likes the traditional nature of the oil and gas operations.

He anticipates this to be a long-term position that he will hold via the company. For me, it’s a good lesson that firms that have proven customer demand over decades can be a reliable place to invest my money.

It might come as a surprise to some that I’m not going to be buying shares in Berkshire anytime soon. But I like to glean the wisdom from Buffett and then put my own spin on it, investing actively in the process.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

American Express is an advertising partner of The Ascent, a Motley Fool company. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple and Occidental Petroleum. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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