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  • Mar 3, 2022 - The Single Most Important Takeaway from Warren Buffett's 2022 Letter

The Single Most Important Takeaway from Warren Buffett's 2022 Letter

Mar 3, 2022

These 6 Stocks Expanded Profit Margins Despite Inflation Pressure

Warren Buffett's 2021 letter to shareholders is out and you may have already zeroed in on your favorite part from the letter.

My favorite is this one line: Charlie and I are not stock-pickers, we are business-pickers.

There's an interesting story around Ben Graham and how he let go of a potential 100-bagger because he stuck to his core principle.

Graham's junior colleague recommended that they buy a stock known as Haloid. The company had the rights to a promising new process called Xerography.

It'd been paying dividends for many years now. The colleague felt that they should buy the stock because its future looks very promising.

Graham refused. He said that the stock is not cheap enough at US$ 21 per share. Well, the company was none other than Xerox, whose share price went to as high as US$ 2,000 in the following years.

Why did Graham refuse Xerox? Simply because he considered himself a stock-picker and not a business-picker. He did not understand the business of technology and stayed away from it.

Graham did not invest for the very long term. He was happy taking his 50%-100% profits and moving on to the next business.

Warren Buffett on the other hand stays invested as long as the fundamentals of the business is intact. Coke is a great example. He did not sell Coke even when it reached exorbitant valuations in the early 21st century. He was focused on the quality of the business and since that was intact, he stayed put.

I think this distinction is very important.

Are you more of a stock-picker or a business-picker? If it is the former, then your holding periods should be 2-3 years or max 5 years.

But if you are a business-picker then you should have a much longer horizon and you should stay invested as long as the fundamentals of the business remain intact. You should not sell no matter how high the valuations go.

So this was one of my favourite takeaways from the Oracle of Omaha's recent letter to shareholders.

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Rahul Shah

Rahul Shah co-head of research at Equitymaster is the editor of (Research Analyst), Editor, Microcap Millionaires, Exponential Profits, Double Income, Midcap Value Alert and Momentum Profits. Rahul has over 20 years of experience in financial markets as an analyst and editor. Rahul first joined Equitymaster as a Research Analyst, fresh out of university in 2003 but left shortly after to pursue his dream job with a Swiss investment bank. However, he quickly became disillusioned working for the 'financial establishment'. He learned first-hand the greedy stereotype of an investment banker is true and became uncomfortable working for a company that put profit above everything else. In 2006, Rahul re-joined Equitymas ter to serve honest, hardworking Indians like his father, who want to take control of their financial future - and not leave it in the hands of greedy money managers. Following the investment principles of Benjamin Graham (the bestselling author of The Intelligent Investor) and Warren Buffet (considered the world's greatest living investor), Rahul has recommended some of the biggest winners in Equitymaster's history.

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