From 65438 to 0956, Warren Buffett worked in new york with his teacher, Benjamin Graham, the founder of the Value Investment Law. When Graham decided to retire, he hoped that Buffett, his best student, would become a partner of Graham Newman, but Buffett, 25, chose to go back to his hometown. Soon after, at the request of four family members and three friends, Buffett set up a new investment company: Buffett United Limited. However, before accepting the funds from these relatives and friends, Buffett invited them to the Omaha Club for dinner and party, and they went Dutch.
That night, Buffett sent them several pages of legal documents with a formal partnership agreement; He told them not to worry too much about the contents of these documents, and he promised that there was nothing unexpected in them. He called the party mainly to discuss what he thought was more important, namely the basic rules of investment. This is a short rule. He printed a copy for the people present and explained it carefully one by one. Buffett insists that investment is completely independent. He will not say what the company is actually doing, nor will he talk more about the actual shareholding. He said to them, "These basic principles are my investment philosophy. If that's what you think, let's get started. If you disagree, I can understand. 」
Basic principles of investment
We will never guarantee our partners how much return on investment will be. Partners withdraw 0.5% of their capital every month, and all they do is get their capital back. If you can earn more than 6% return on investment every year, it will be enough to meet the demand of getting back the funds, and the principal will also increase. If you can't earn 6% return on investment a year, then part or all of the money you receive every month will be paid from the principal.
If the return on investment in one year is less than 6%, the partners who withdraw their funds every month will get less money in the second year than before.
When we talk about the annual investment profit and loss, it is based on the market value of assets, which is the result of the ratio of the market value of assets at the end of the year to the market value of assets at the beginning of the year. This may have nothing to do with the realized investment gains and losses reported in the current year.
Whether our performance is good or not depends not on whether we make money this year, but on the performance of the stock market or major investment companies reflected by the Dow Jones Industrial Average. If our performance is better than these benchmarks, whether we make money or lose money, we are doing well. If the performance is not as good as these benchmarks, then we should be thrown eggs.
To judge the investment performance, I think it is best to look at the figures of five years, or at least three years. There is no doubt that our performance is sometimes worse than that of the Dow Jones index, and it may be significantly worse. If the investment performance of more than three years is not as good as that of the broader market, then we should all find another way out for the funds, unless the stock market is bullish in those three years and the market rises sharply under the impetus of speculative funds.
My job doesn't include predicting fluctuations in the stock market or the economy. If you think I have the ability, or feel the need to run investment business, don't join this partnership.
I can't guarantee the investment performance of partners, but I can guarantee and promise:
We choose investment targets based on the value of assets, not their popularity; We try our best to reduce the risk of permanent loss of funds (rather than short-term market value loss) by obtaining a considerable margin of safety in each investment and diversifying investments; My wife and children and I will put almost all our wealth into this partnership.
Everyone invited to Omaha Club that night signed a cooperation agreement, and Buffett accepted their check. When new partners join, everyone will get a detailed explanation of the investment principles, and each partner will receive the latest version every year.
In the following days, Buffett explained his investment activities and performance by writing to a limited but increasing number of partners. He regards letter writing as an educational tool to explain and emphasize the concept behind the investment principle, talk about his expectation of future performance and comment on the market environment. At first, he wrote once a year, but because quite a few partners complained that a year was too long, he began to write at least once every six months.
These "partnership letters" recorded Buffett's investment ideas, methods and thoughts. After he ended the partnership, he immediately started the well-known Berkshire Hathaway business. During this period, he made unprecedented investment achievements, even comparable to Berkshire's performance. Although he expects that there will be bull market and bear market in investment, he thinks that it may be 65,438+00 percentage points higher than the Dow Jones index in 3-5 years, which is also his goal.
However, his actual performance is much better: he has always outperformed the market and has never lost a year. During this period, the annualized rate of return of the partnership fund after deducting expenses is close to 24%. Buffett's best investment performance for many years in his career came in these early days.
The experience and lessons contained in Buffett's comments during this period provide some eternal guidance for all types of investors (from novice and amateur investors to experienced professional investors). They constitute a set of consistent and effective investment principles and methods, and there is nothing common and attractive, fashionable or technical in the market now (or at any time). These letters do have detailed analysis that can attract senior professionals, but they can also be said to be an introductory investment course provided by Buffett, which explains a lot of basic principles and common sense of investment, and everyone should get a * * * sound.
This book is the first book ever to sort out these partnership letters, presenting Buffett's investment wisdom in an easy-to-understand way, including his investment principles, such as contrarian diversification strategy, pious belief in compound interest, and sound (rather than traditional) decision-making procedures. This book also expounds Buffett's three main "operating methods", including undervaluation, arbitrage and controlled investment, and we will also discuss the interesting and important evolution of these investment methods over the years.
These letters are very valuable because they present a very successful young investor's mentality of initially managing only a small amount of funds, which investors can adopt when they set foot in the financial market and pursue long-term achievements. These letters strongly prove that the value-oriented long-term investment strategy is very feasible. In turbulent times like now, people are easily attracted by short-term leveraged speculation strategies, but these strategies are rarely effective in the long run. These letters set forth the eternal principles of prudence and discipline, which are the cornerstones of Buffett's investment achievements.
If the young Buffett starts his partnership now, he will undoubtedly achieve great success. In fact, print media reports show that he had "guaranteed" that if he only needed to invest millions of dollars now, he would get an annual return of 50%. No matter now or many years ago, experts should be able to earn such a high rate of return with very little money, because the market is still inefficient, especially some small stocks that few people pay attention to, and Buffett is undoubtedly an outstanding investor who knows how to seize this opportunity. However, as long as the stock market continues to be forgetful, the stock price will still fluctuate because of people's fear and greed, and investors with correct mentality and initiative can always find opportunities to earn rich returns.
As in the past, many people are not firm enough to adhere to the investment discipline required by the value investment law. Buffett has repeatedly returned to the essence of the constant investment principle in his letter. This is an investment method that attitude is more important than IQ. Even the most experienced investors should be loyal to their investment methods and not be tempted by trends. Buffett's control over his investment sentiment is worth learning.
Each chapter of this book is arranged around a single concept or theme and adopts the same format. First, an article summarizing the main points explains the background story. I hope this will help to explain the historical background and make readers fully understand the current significance of the contents in the book.
Then I will extract all the important paragraphs related to the theme from Buffett's letters. In this way, readers can fully appreciate Buffett's handwritten articles, and this book can also become a practical reference book, which is convenient for readers to study Buffett's exposition during this period. Putting all comments on the same topic in the same chapter can help us see many things clearly, such as the form of related topics discussed in many letters, and also observe the development of Buffett's thought; If we read these letters one by one in chronological order, it will be more difficult to read them clearly.