Warren Buffet: Listening to Market Predictions a Waste of Time

Warren Buffett's annual letter to shareholders cautioned individuals against frequent buying and selling of equities.

Investors should treat their equity holdings like real estate purchases, focusing on the potential for profits over time rather than short-term price variations, Buffett, 83, wrote in the letter, published by Fortune magazine on 25 February.

In the letter, Buffett told the story of two investments made more than two decades ago: a 400-acre farm north of Omaha, US; and a retail building in Manhattan, adjacent to New York University.

The farm is worth about five times what Buffet paid and earnings have tripled.

Meanwhile, at the Manhattan building, "as old leases expired, earnings tripled. Annual distributions now exceed 35% of [the] initial equity investment," he wrote.

"If 'investors' frenetically bought and sold farmland to one another, neither the yields nor the prices of their crops would be increased. The only consequence of such behaviour would be decreases in the overall earnings realised by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties.

"Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm," Buffet advised.

"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," Buffet warned.

Buffet's Berkshire Hathaway last week decided to stop letting high-speed traders purchase direct access to press releases distributed by its Business Wire unit. Such companies regularly enter and exit positions in less than a second. Buffett said last year that such activity was "not contributing anything to capitalism."

Biggest Gainer in 2013

Warren Buffet made the most money in 2013.

The chairman of Berkshire who consistently ranked among the world's wealthiest people made about $37m (£22.2m, €26.9m) per day in 2013 to become the biggest financial gainer in 2013, according to research firm Wealth-X that focuses on high net worth individuals.

Buffet's net worth was $59.1bn at the end of 2013, up $12.7bn from $46.4bn at the beginning of that year.