Wednesday, 4 January 2017

Risk-Essence-Of-Investing

Latest annual letter Warren Buffett's Berkshire Hathaway shareholders God is a classic else. As usual, it uses buffet suitable to do more than provide an update on the performance of the portfolio. He also gives his point of view clear fantastic headed on what distinguishes the wisdom of investing wisdom. His latest letter touches in particular on the subject of real importance of each investor in the modern era, but especially, I think, the Christian investors: watershed distinction between investment and speculation.

Buffet chooses as a case of lessons in his two relatively small in real estate investments personal investment study. After the bubble burst in early 1980 on the Midwest price of agricultural land, he purchased from the FDIC farm 400 acres about 50 miles north of Omaha him home. The total cost: $ 280,000. Then in 1993, along with a handful of partners, he bought the neighboring University of New York retail property. This time it was his purchase of trust Corp resolution, the entity set up to get rid of the repercussions of the commercial real estate bubble burst the savings and loan scandal.



The logic is simple canteen to buy a farm. Through the Son who loves agriculture, he knew a reasonable degree of confidence in the farm likely production and operating expenses. From this he calculated that the return of normalization to buy him to be about 10%. He also expressed his belief that both productivity and crop prices are likely to move higher over time - expectations that have been proven justified. Now, after the passage of 28 years, the farm "three times its profit has doubled and is worth five or more times what I paid."

The rationale for the purchase of retail clear alike. The current yield is enlarged on the price of the property to be about 10%. In addition to the property offered upside convincing: many of the shops were vacant, and the rental rate was the largest tenant of much less than the market. Economic benefit in the end turned out to be better than it was at the farm. According to the buffet:

As the old leases expired, three times the profits. Now exceed its annual dividend 35% of the initial investment in our stock. Moreover, the mortgage refinancing our original in 1996 and again in 1999, and the moves that allowed several special distributions totaling more than 150% of what we had invested.
Notes:
* A regular reader of these columns will understand that there is another factor to consider. The company can create compelling value to customers, having done so on other stakeholders account ( 'neighbors') - for example, by pushing the bad staff or by spoiling the environment. Intuitively, this is not a preferred activity of God, just as God does not prefer to contribute to the Church of the money looted from others through the distribution of drugs or bank robbery.

No comments:

Post a Comment