Overall, I would characterize our overall performance last year as below par. The companies we own are seemingly safe at the time of purchase, but due to major disruptions and panic in the last few months of the year, they got a lot cheaper. Clearly, looking back I could have been more cautious, and I failed to recognize the magnitude of the crisis that was unfolding. It’s impossible to time markets. And I don’t pretend that I can. However, the prices we paid are not high and we are expecting a complete recovery once the market settles down. We have already started the year well above market returns.

We believe the only way to be invested in the equity markets and retain one's sanity is to focus on a picture of at least 3-5 years. A 3-month period, no matter how dramatic, is still only a short-term event in the longer horizon. I thought two anecdotes might bring the point home. Warren Buffett famously bought his stake in The Washington Post in 1973. He said that the company was obviously trading at 25% of fair value, something readily agreed upon by members of the financial press and analysts. He proceeded to buy 10% of the company. Throughout 1974 and 1975, the company continued to struggle, and revenues and earnings declined. The stock fell about 25%, so Buffett had a 25% loss after 2 years. In 1977, four years after the purchase, the stock was worth three times what he paid, and today it is worth an astonishing 117 times what he paid. When retelling this story 30 years later, those first two years obviously look immaterial. But at the time, after the first 2 years, the next 28 years were not known and many investors would have lost their nerve. By focusing on the long term, Buffett was able to make an excellent investment, even though he was not even within 2 years of the bottom.

Another example is from Buffett's business partner Charlie Munger. Munger ran an investment partnership from 1962 to 1975. From 1962 to 1972, he handily outperformed the markets, establishing an excellent 10-year track record. However, in 1974 and 1975, Munger's portfolio lost 32% each year, resulting in a 53% decline in the entire portfolio over a two-year span. When recounting this period, Munger proudly states that he had communicated with his clients about market volatility and short-term results, and did not lose a single client despite these hair-raising losses. This is very fortunate, since the clients were then around to enjoy the 73% increase in 1975, which recouped most of their losses and resulted in an excellent 13- year track record.

With that said I again ask all of you to focus on the long term and allow each of our companies to perform. As their performance continues or improves we will see stock price appreciation.