In my earlier years, throughout school and then university, I didn’t know much about buying stocks. I then stumbled across The Motley Fool one day, which started my investing journey. I was also lucky enough to find out about the book The Intelligent Investor soon after. And it was the author who wrote the preface in this book, Warren Buffett, who had a large influence on my investing style today.
After reading many more books since The Intelligent Investor, it’s Warren Buffett’s annual shareholder letters that I’ve probably had most value from. Here are three investing rules I’ve taken from these letters, and how I’m going to use them in 2022.
Warren Buffett on selling
The first quote is from the 2018 letter. “Truly good businesses are exceptionally hard to find. Selling any you are lucky enough to own makes no sense at all.”
This was particularly relevant for me in 2021. A large holding of mine, Games Workshop, underperformed through the year, which impacted my portfolio return. However, I monitored how the business was performing and saw enough to keep holding. It didn’t matter so much that the share price didn’t agree over one year. I remain of the view that this is a truly good business, and agree that such firms are hard to find. I’m going to continue monitoring the business through 2022, but will not be selling based on share price movements alone.
Avoiding home bias
In the 2020 shareholder letter, Warren Buffett said this about the US: “Never bet against America.” This was in reference to the country’s economic progress, despite some severe interruptions along the way. It was a pertinent point given that this was the year Covid shut down global economies. So how does this translate into my portfolio? It’s easy for a UK-based investor like myself to only focus on British stocks. However, I should look further afield, to countries like the US, to diversify my portfolio. The US is the largest economy globally after all, and there are plentiful opportunities for me as an investor to benefit from America’s progress.
Buffett’s book recommendation
In the 2016 letter, Warren Buffett said: “The best book I read last year was Shoe Dog, by Nike’s Phil Knight. Phil is a very wise, intelligent and competitive fellow who is also a gifted storyteller.”
This isn’t about investing per se, but I also read Shoe Dog and it’s a great read. What I also take from this, though, is to find passionate leaders at companies that are driven to make them a success. If I invest in these stocks, there’s a high chance that my portfolio will do well. Nike has been an astounding company over the years, and this is in no small part to co-founder Phil Knight, as he describes in Shoe Dog.