The chairman and CEO of Berkshire Hathaway, Warren Buffett who is also the world’s most successful value investor, published his annual letter to shareholders on February 24, 2018.
The letter is widely followed not only by the international financial media but also by many investors around the world due to his remarkable track record and also since it is considered one of the best reviews on the US stock market and the wider economy.
He wrote, though the company has a huge amount dedicated to one or more large acquisitions, he and his partner Charlie Munger were unable to invest because of the high share prices.
He stated, “In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price. That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high.”
He also hinted at the current stock market behavior and the importance to have the available liquidity to take opportunities that can be presented if share prices decline rapidly.
He stated that “though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.”