Warren Buffett on Market Volatility, Risk and More

On my must-read list is Warren Buffett’s annual letter to Berkshire Hathaway (BRK.B) shareholders. Even if you are not a Berkshire shareholder (like I am), the observations on the financial markets and investing are often priceless. This is year was no different. Though Buffett’s comments about acquisitions received the most attention after the latest letter was released last weekend, there were several observations about investing that are worth paying attention to (and even saving).chart

Possibly the best parts of the letter came from Buffett’s discussion about a 10-year bet. Buffett predicted that the returns of a plain-vanilla S&P 500 index fund would beat those of hedge funds. He won the bet handedly. So I’ll start with the lessons he shared in discussing the bet before moving on to other noteworthy parts of the letter.

The Secret to Dealing With Market Volatility: In putting market fluctuations into perspective, Buffett wrote, “Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period—or even to look foolish—is also essential.”

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Highlights from this month’s AAII Journal

AAII Sentiment Survey

Neutral sentiment is at its highest level since last July, rising to the upper end of its typical range. More about this week’s results.

This week’s results:
  • Bullish: 37.3%, down 7.4 points
  • Neutral: 39.3%, up 6.7 points
  • Bearish: 23.4%, up 0.6 points
Historical averages:
  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%
Take the Sentiment Survey.

AAII Asset Allocation Survey

Cash allocations among individual investors rose to a four-month high, while equity allocations stayed above 70% for just the 39th time in our survey’s history. More about the latest results.

February AAII Asset Allocation Survey results:
  • Stocks and stock funds: 70.1%, down 1.1 percentage points
  • Bonds and bond funds: 15.0%, down 0.5 percentage points
  • Cash: 15.0%, up 1.7 percentage points

February AAII Asset Allocation Details:

  • Stocks: 30.5%, down 2.8 percentage points
  • Stock Funds: 39.6%, up 1.6 percentage points
  • Bonds: 2.6%, down 0.6 percentage points
  • Bond Funds: 12.4%, up 0.1 percentage points

Take the Asset Allocation Survey.

What’s Trending on AAII

  1. A Dividend Approach to Judging the Value of Stocks
  2. The Effect of Dividend Changes on Expected Cash Flows
  3. How Much Small Cap Should Be in Your Portfolio?

The Week Ahead

Fourth-quarter earnings season will start to wind down. Still, nine S&P 500 member companies are scheduled to report: Autodesk Inc. (ADSK), H&R Block Inc. (HRB), Ross Stores Inc. (ROST) and Target Corp. (TGT) on Tuesday; Brown-Forman Corp. (BF.B), Costco Wholesale Corp. (COST) and Dollar Tree Inc. (DLTR) on Wednesday; and Cooper Companies Inc. (COO) and Kroger Co. (KR) on Thursday.

The week’s first economic report will be the ISM’s February non-manufacturing index, released on Monday. January factory orders will be released on Tuesday. Wednesday will feature the February ADP employment report, January international trade data, the first revision to fourth-quarter productivity and the periodic Beige Book. February jobs data, including the change in unemployment and nonfarm payrolls, will be released on Friday.

Three Federal Reserve officials will make public appearances: New York president William Dudley on Tuesday and Wednesday, Atlanta president Raphael Bostic on Wednesday; and Chicago president Charles Evans on Friday.

Local Chapter Meetings

AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!

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