From the 2013 Berkshire Hathaway Shareholder Letter
I will tell you about two small investments that I made long ago. Though neither changed my net worth by much, they are instructive.
The Farm. In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC for $280,000. That was considerably less than what a failed bank had lent against the farm a few years earlier. I knew nothing about operating a farm. But I learned that the farm had about $2,000 of value per acre. At that price, my calculation was simple: the normalized return from the farm would be about 10%.
I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would, of course, be the occasional bad crop, and prices would sometimes disappoint. But so what? I now have had the farm for 28 years and its annual return has been about 10%. The original cost has more than quintupled.
I still know nothing about farming.
The Real Estate. In 1993, I made another small investment. Shortly after the Resolution Trust Corp. started unloading commercial real estate at panic prices, I purchased a small retail property adjacent to New York University. The RTC had no more clue than I did about the future of rents, but what I did know was that the property was substantially under-rented.
The annual return from this property has been about 35% on my original equity investment. And the property's income has tripled.
With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.
If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so.
Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important.