Warren Buffett is a legend in the investing world. The chairman of
Berkshire Hathaway (
BRK-B), he has amassed a fortune of over $60 billion dollars, using his company as a vehicle for investing in stocks, fixed income instruments, and buying entire businesses. As of the last list, he was the 2nd richest man in the world according to the Forbes 400. Berkshire has evolved from a textile mill in the northeast into a huge conglomerate, with operations ranging from car insurance (
GEICO) to underwear (Fruit of the Loom) to paint (Benjamin Moore). Moreover, some of Warren's stock investments, such as his positions in
Moody's (
MCO),
Coca-Cola (
KO), and
Gillette (now Proctor & Gamble PG) are textbook examples of buying quality at bargain prices. Berkshire's performance has been remarkable - since 1965, the company has grown book value at an annualized 20.3%, vs. the S&P 500's 8.9% annual gain, outperforming the market in 39 of those 44 years.
So it is with baited breath that value investors await his annual letter to shareholders. These have been Warren's principal method of passing his wisdom along to the general public, on everything from how he chooses stocks to his outlook on the near future. Entire books have been written from the content in his letters - for example, The Essays of Warren Buffett is an organized compilation of the wisdom from these letters. Let's take a look at a few points from his 2009 letter to shareholders and see what nuggets we can apply to investing the Magic Formula way.
Keep Investing in Down Markets
2008 was a terrible year for all stock investors, and Buffett was not immune. Berkshire's net worth per share fell about 9.6%, compared to a 37% drop in the S&P 500, and a 26% drop in the earliest MFI screen MagicDiligence has available. In the letter, Warren offers two pieces of advice for investors in markets like this, one "do" and one "don't". Neither of these should surprise any Buffett fans, but nevertheless they reinforce the right way to invest.
First, the "don't". Warren again re-iterates that selling out, swearing off stocks, and holding cash is a terrible investing policy. He points out the smugness of those holding cash as stocks continued to decline late into the year and early this year.
