InvestorQ : What are some of the important lessons that one can glean from Warren Buffett as he enters his 93rd year?
Dawn Cherian made post

What are some of the important lessons that one can glean from Warren Buffett as he enters his 93rd year?

Mitali Bhutta answered.
4 weeks ago

The interesting part of the story that Buffett at 92 still holds some fabulous investment lessons in an uncertain world. Here are 4 important investment lessons that we can take away from the life and times of Warren Buffett.

· If it is a debate between analysis and conviction, go with conviction. In 65 years of his investment career, the colour and the nature of the markets changed dramatically. But the one thing that remained constant about Buffett is his focus and thrust on conviction. Needless to say, Buffett missed out some value creation stories like IT, internet, biotechnology etc. However, Buffett neither regretted these misses nor allowed them to impact his long term portfolio performance. According to Buffett, conviction and focus on what you are good at are the two things that work fabulously in investing career.

· Diversification is a great idea but only works up to a point. To beat the market, concentration in smart stories is the key. Buffett does not mince words when he says that it is the job of active fund managers is to take concentrated risks. Historically, Buffet has taken long term concentrated bets on stocks like Coca Cola, Bank of American, Amex etc. In last 5 years it has been all about his conviction on Apple and this stock accounting for the biggest chunk of Berkshire portfolio. That is the only way to beat the market.

· It is fine to make mistakes but not fine to repeat mistakes again and again. You cannot avoid mistakes in the investment process but the problem arises when you don’t learn and make the same mistake again and again. Buffett has made his share of mistakes too and these include his investments in IBM, a slew of airline investments etc. He managed to exit most of them at no profit or even at a deep loss. As Buffett says, when you are wrong admit it and get out quickly. But never get out of a good stock too early.

· Finally, nobody can question long term CAGR returns on your portfolio. That is the ultimate litmus test. People often make snide remarks about his performance like; he was just in the right place at the right time or that his ideas are outdated and will not work today or that tech geeks have created more wealth than Buffett etc. That may or may not be true but it does not matter. At the end of the day, remember that in last 56 years, Berkshire Hathaway’s gave CAGR returns 2X that of S&P 500. All else is immaterial.