Top five lessons from Warren Buffett's 50th annual letter

Warren Buffett and Charlie Munger's 50th anniversary letters were packed with worldly wisdom. Here are some important takeaways.

It's a special year for shareholders of Berkshire Hathaway (NYSE: BRK.B), marking the 50th anniversary of value investing legends Warren Buffett and Charlie Munger taking control of the company. Here are our top five takeaways from Buffett's commemorative annual letter.

1. “It is entirely predictable that people will occasionally panic, but not at all predictable when this will happen. Though practically all days are relatively uneventful, tomorrow is always uncertain. (I felt no special apprehension on December 6, 1941 or September 10, 2001.) And if you can't predict what tomorrow will bring, you must be prepared for whatever it does.”  
Lesson: You can't predict, but you can prepare

2. ”Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions … Volatility is far from synonymous with risk.” … “As Ben Graham said many decades ago: 'In the short-term the market is a voting machine; in the long-run it acts as a weighing machine.”
Lesson: Volatility ≠ Risk

3. “Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. “
Lesson: Know your investing enemies

4. “A business with terrific economics can be a bad investment if it is bought for too high a price. In other words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire is not exempt from this.”
Lesson: Buying good businesses isn't enough; the price you pay matters

5. “We will never play financial Russian roulette with the funds you've entrusted to us, even if the metaphorical gun has 100 chambers and only one bullet. In our view, it is madness to risk losing what you need in pursuing what you simply desire.”
Lesson: Don't tell your wife that she's blocking your view of the cricket

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