(MoneyWatch) On Friday, Warren Buffett released his much awaited annual letter to shareholders of Berkshire Hathaway (BRK.A). Investors idolize Buffett with good reason. From 1965 through 2012 the book value of Berkshire Hathaway increased at 19.7 percent per year, more than twice the 9.4 percent return on the S&P 500 Index. And Berkshire Hathaway has never had a five-year period when it underperformed the S&P 500 (though that streak is now at risk as the index has outperformed for the last four years).
To me, the great irony is that despite the high esteem in which Buffett is held, many investors not only ignore his investment advice, but they tend to do exactly the opposite of what he advises. For example, while investors react to the latest economic news by darting in and out of the market, Buffett advises in his 2013 letter: “I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.”