Learning from Warren Buffett Shareholders Letters – Year 1978.

12th May 2024


Learning from Warren Buffett Shareholders Letters – Year 1978.

Dear Fellow Investors,


Jay Shree Ram! Election fever is going one. Market is Greedy some days and Fearful someday. But, we are busy learning from the MASTER. Yesterday, we dealt with the 1977. Today we are dealing with the year 1978. Today also – we will learn superb lessons from the master.


If you have questions regarding any of the things – if you do not understand – you can send me questions on – Hiteshmparikh@gmail.com. With subject line - Questions from Year 1978. ( every time the year will change). Questions will not be answered on WhatsApp or those who do not follow the above steps.


On capital intensive businesses: -


The textile industry illustrates in textbook style how producers of relatively undifferentiated goods in capital intensive businesses must earn inadequate returns except under conditions of tight supply or real shortage. As long as excess productive capacity exists, prices tend to reflect direct operating costs rather than capital employed. Such a supply-excess condition appears likely to prevail most of the time in the textile industry, and our expectations are for profits of relatively modest amounts in relation to capital.


Self-Study: - Study your investments which require regular capital infusion and you are not able to generate superlative returns as your products or services are ME TOO products or services. You will come to know why the market is giving them LOW P/E multiples.


On Market prediction for short term: -


We make no attempt to predict how security markets will behave; successfully forecasting short term stock price movement is something we think neither we nor anyone else can do. In the longer run, however, we feel that many of our major equity holdings are going to be worth considerably more money than we paid, and that investment gains will add significantly to the operating returns of the insurance group.


Our Comment: - We are about to see the election results on 4th June. Ideal way is to wait for the results rather than trying your predictive skills and take some action on the buy or sell side.


Market was there when we were not born. Market will be there when we all are dead. One or two months of inactivity is good ahead of major events.


Where to invest?


We get excited enough to commit a big percentage of insurance company net worth to equities only when we find (1) businesses we can understand, (2) with favourable long-term prospects, (3) operated by honest and competent people, and (4) priced very attractively.


We usually can identify a small number of potential investments meeting requirements (1), (2) and (3), but (4) often prevents action.


Our Comment: -


Market is at the top now. We are also not getting the right prices to buy businesses we understand. This is a universal problem.


What should be the attitude post investments?


We are not concerned with whether the market quickly revalues upward securities that we believe are selling at bargain prices. In fact, we prefer just the opposite since, in the most years, we expect to have funds available to be a net buyer of securities. And consistent attractive purchasing is likely to prove
to be of more eventual benefit to us than any selling opportunities provided by a short-term run up in stock prices to levels at which we are unwilling to continue buying.


Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.


Our comment: -


When you like some stocks and if you have invested in the same – and you also know that you are going to get more money next month / next year – will you not be happy to buy your favourite stocks at lower prices rather than higher prices?


Most investors want higher prices!! Change your attitude.


Next Week we will deal with the year 1979. Till then keep learning.


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Learn a Lesson. Live with Passion & Invest with Reason.




Hitesh Parikh.