At Berkshire Hathaway’s Annual General Meeting (1st May) Warren Buffett warned investors to keep a close eye on managerial quality because it is there that the biggest risk resides.
In the lead up to that statement he talked about how, when you’ve made a mistake and put money into a badly managed firm or in one with poor industry economics it may not be too serious for your overall portfolio result because your good decisions will come to dominate your overall result.
First the basic principles:
BUFFETT: “Any time we’re look at buying a business we look at evaluating the competitive strengths of the business; the price we have to pay; the management we get”
Mistakes will be made, but that’s OK
BUFFETT “And I’ll continue making mistakes. And we’ve got some wonderful deals and some terrible deals.
“The nice thing is when we’re disappointed in a business it usually becomes a smaller and smaller percentage of our business [portfolio]. And when we get a successful business like a GEICO – doing 15 times as much business as when we bought control – they become proportionally a much more important part of our mix.
“So you really get, just through natural forces, more of your money in the things that have developed more favourably than you thought. You actually end up getting a greater concentration in the ones that work out.
“It’s not like having children, where the bad ones cause you more problems. Bu………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
Prof. Glen Arnold
I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.
Originally, I wrote all my ideas out in full on this website. Now that ADVFN publish them they are entitled to display the full version for six months – you can see them here. Thus can I only post the first few paragraphs here for anything younger than six months.
I write 2 to 3 newsletters per week - investing is about making the right decisions, not many decisions.