Tags: Coumarianos | investment | Buffett | stock

Analyst Coumarianos: Investment Takeaways From Buffett's Shareholder Letter

By    |   Monday, 09 March 2015 06:00 AM

Warren Buffett's annual letter for Berkshire Hathaway shareholders contains several important lessons for individual investors, says John Coumarianos, a former equity analyst at Morningstar who now runs the website Institutional Imperative.

"First, although it seems banal to say, a stock is an ownership unit of a business," Coumarianos writes in an article for MarketWatch. "The lesson for investors is that a stock represents the value of a business's future earnings. You should own it for that reason, and not because you think you can capitalize on its short-term gyrations."

If you are looking to invest money that you won't need during the next few years, the volatility you must accept by investing in the stock market is less risky to your finances than is sticking with safer investments. "Volatility is not risk," Coumarianos notes. For instance, the CBOE Volatility Index (VIX) has spiked several times since September without derailing the bull market.

"Keep a multi-decade time horizon. Buffett thinks long term. Being able to have a longer time horizon allows you to . . . reap the inflation-beating rewards [stocks] deliver." Buffett is famous for holding on to stocks for decades and enjoying juicy returns as a result.

Meanwhile, though Buffett has continuously advocated higher taxes for the wealthy, his Berkshire Hathaway has done a fabulous job at avoiding corporate taxes. The company announced in its latest annual report that it has been able to defer $61.9 billion of taxes.

"This figure — about eight years' worth of taxes at Berkshire's current rate — is a reminder that Buffett understands how putting off the moment when taxes are due gives him more money today to invest elsewhere," writes Stephen Foley of the Financial Times.

And Berkshire has successfully managed its tax bill throughout Buffett's career, Foley says.

For example, Berkshire's energy unit garners tax credits for renewable power generation. It received $258 million of wind energy tax credits in 2014, and $913 million of solar power tax credits in 2012 and 2013.

On the personal-tax front, Buffett has backed President Obama's efforts to raise taxes on the wealthy, saying it's unfair that he has a lower tax rate than his secretary does.

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Warren Buffett's annual letter for Berkshire Hathaway shareholders contains several important lessons for individual investors, says John Coumarianos, a former equity analyst at Morningstar who now runs the website Institutional Imperative.
Coumarianos, investment, Buffett, stock
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2015-00-09
Monday, 09 March 2015 06:00 AM
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