2 Important Lessons from the Latest Annual Report of Warren Buffett’s Conglomerate

Every year, the Oracle of Omaha, Warren Buffett, releases his firm’s annual report. In it, readers can find a treasure trove of information about investing. This year was no exception. So, let’s take a look at two important lessons I gleaned from the 2016 Annual Report published recently.

1. On American businesses and their future, head here

2. Do not fear stock market downturns

Warren Buffett is well-known for the quote, “Be fearful when others are greedy and be greedy when others are fearful.” In his latest Annual Report, touched on something similar. He wrote:

“During such scary periods [referring to major market declines], you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Buffett also added:

“[T]he years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie [referring to his business partner, Charlie Munger], not economists, not the media.”

What this means is that as investors, we should embrace stock market crashes. It is only during these times that wonderful bargains will show up. Investors who had the mettle to invest heavily in fundamentally strong businesses during the 2008-09 Great Financial Crisis would be sitting on huge profits now.

Also, we should not sell during a market crash. Instead, we should hold on to our positions, provided the business fundamentals underlying our stocks are still intact and the stock is undervalued. In fact, if the price of a stock is low relative to its intrinsic value, we should buy more. Another famous investor, Sir John Templeton, said that if there are good reasons to hold on to a stock before a crash, there should be even better ones after a crash.

Major market declines will continue to happen going forward. Nobody knows when they will come, but we have to be prepared mentally and financially to grab the opportunities when they appear.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.