Letter from Warren Buffet to his shareholders

Absolutely great, at the level of Juan Roig's (Mercadona) speech, I extract some phrases from the blog of Jesus EncinarI would like to congratulate him for echoing these statements, and thank him for translating them. The thing about people who know a lot about something, as is the case of Warren Buffet in economics, is that they are able to explain complicated things in a simple way, and if not, look at this:

By the end of the year, investors of all stripes were disoriented and bleeding, like little birds that had crashed a badminton match.

Throughout the country, the maxim became the credo I read on the walls of many restaurants when I was young: In God we trust; all other pay cash ("We trust in G-d, others pay in cash", In God we trust is the phrase that appears on all dollar bills).

The cheap medicine that used to be dispensed in teaspoons is now dispensed in barrels.

A probable consequence will be an inflationary vortex.

Huge industries have become dependent on federal aid, now will come cities and states with mind-boggling demands. Removing these entities from the public udder will be a political challenge: they are not going to stop sucking from the state easily.

What is certain is that the economy will continue to stumble in 2009 and, given what we have seen, probably well beyond.

When it comes to investing, pessimism is your friend and euphoria is your enemy.

"Price is what you pay, but value is what you get in return." Whether it's stocks or socks, I like to buy quality merchandise when it's on clearance.

A few years ago, our competitors were known as "leveraged buyout operators" (LBOs). But LBOs got a bad name. Like in an Orwellian novel, the LBOs decided to change their name, but not the ingredients of their operations, including their penchant for charging commissions and their love of debt. Their new label was private equitya way of calling things by their opposite. The purchase of a company by these firms almost inevitably results in sharp reductions in the equity portion of the acquirer's balance sheet. A large number of these companies, acquired as recently as two or three years ago, are now mortally wounded by the debt that their purchasers of the acquired company are carrying. private equity have piled on top of them. The signatures of private equityParadoxically, they are not rushing to inject the capital their companies now desperately need. Rather, they are making sure that the capital they have left is well protected.

We felt like a couple of hungry mosquitoes on a nude beach. There are tasty targets everywhere.

Indebted that should never have been indebted financed by lenders that should never have lent.

Both parties hoping that rising housing prices would justify a settlement that would be impossible any other way. It's like Scarlet O'Hara all over again: "I'll think about it tomorrow".

Home ownership is a wonderful thing. My family and I have enjoyed the same house for fifty years and have many more to go. But enjoyment and use should be the primary reasons for purchase, not profit or refinancing possibilities. The home purchased should fit the income level of the buyer. The current real estate crisis should teach buyers, banks, real estate companies and the government some basic lessons that will allow us to have stability in the future. To buy a house properly you have to pay at least 10% down and the mortgage should be comfortably met from the lender's income, which should be carefully checked. That people own homes, while desirable, should not be the country's primary goal. That people keep the house they have bought should be the goal.

If looking at past financial results were enough to figure out the future, the Forbes 400 list would all be librarians.

The approval of others is not the goal of investing. In fact, approval is counterproductive because it anesthetizes the brain and makes it less receptive to new facts or to re-examining the conclusions you reached earlier. Beware of investments that generate applause. Big moves are often greeted with yawns.

Greater "transparency", the solution favored by politicians, analysts and regulators to avoid future derailments, is not the remedy for the problems posed by derivatives. I know of no reporting mechanism that even remotely describes or measures the risks of a huge and complex derivatives portfolio. Auditors cannot audit these contracts and regulators cannot regulate them. When I read the "warning" pages of companies entangled in these instruments, all I end up knowing is that I don't know what's in their portfolios (and then I have to take an aspirin).

From this irritating reality emerges the Great Law of Corporate Survival for ambitious CEOs piling up debt and unfathomable balance sheets of derivatives: being slightly incompetent is not enough, to survive they need gigantic disasters of unforeseeable consequences.


Comments

One response to "Letter from Warren Buffet to his shareholders”

  1. Buffet's reflections are very good and your allusion to Juan Roig (Mercadona) is very interesting, a figure that should be more popular and explained in the media (which has been especially fond of extolling the now fallen kings and queens of the real estate industry in recent years).
    This gentleman has shown that he is capable of making money by paying more than the sector agreement, fixed contracts, paying an additional month of maternity leave, assigning people to the centers by proximity to save them travel, refusing to open on Sundays, making people happy, and turning white brands into favorite brands.

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