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Stepan Lavrouk
Stepan Lavrouk
Articles (603) 

Warren Buffett: The Value of Historical Data

The Berkshire chief explains how investors should interpret history to their advantage

September 28, 2020 | About:

Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) know a little something about financial history, having lived through many of the most consequential events of the 20th century. One of the benefits of having lived such a long and rich life is that one acquires a lot of first-hand experience of different types of businesses and market environments. Unfortunately, most of us don't have this kind of experience, so how does one go about filling in the gaps? At the 1995 annual Berkshire shareholder meeting, the duo gave their investors some advice on how to do this.

Make it easy for yourself

Buffett has said many times that investors don't need to have any great mathematical skills, just a good grasp of arithmetic and a willingness to read as many reports as possible. To this prescription, he added that any historical business data that you analyze should be viewed in the context of its industry:

"When we read about one business, we're always thinking of it against a screen of dozens of businesses, it's sort of automatic...The best way to apply this is to read everything in sight. If you're reading a few hundred annual reports a year, and you've read Graham and Fisher you'll soon see if it falls into place for you or not."

Munger went on to add that a great way to quickly absorb all the information about a business is to find a service that quickly summarizes all the relevant data for you. Today, in the age of the internet, there are plenty of services available that make it easy for investors to do this - the GuruFocus stock screeners are excellent tools for this purpose, which can help you quickly figure out what companies are worth your time.

With that being said, there's no substitute for getting to know the nuts and bolts of a business. As Buffett puts it:

"If you'd never watched a baseball game and never seen a statistic on it, you wouldn't know whether a .300 hitter was good or bad. You need to have some kind of mosaic in your head that your thinking is implanted against… We tend to go back [really far] - if I'm buying Coca-Cola (KO), I'll probably go back and read the Fortune articles on it from the 1930s. I like to have a lot of historical background on things, just to know how the business has evolved over time and what's been permanent and what hasn't."

If you're planning to buy and hold a business forever, then it probably makes sense to find out what it's been like to have owned it forever. Luckily, information is easier than ever to access, so now any investor can be well informed and prepared.

Disclosure: The author owns no stocks mentioned.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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