 Good day, fellow investors! One thing that I really enjoy doing is reading Warren Buffett's letter to shareholders and sharing them with you. Today we're going to talk about 1975 and 1976 and there are three very important investing messages in those two letters and what I'm going to finish with is Buffett's investing criteria. What is the criteria that he uses to invest in a stock? So how to pick a business to invest in? So we're going to go through those letters to see how Buffett did it and how Buffett became what he is now. So he starts in 1975 discussing how already last year things slowed down and how he predicted them correctly. Return on equity was only 7.6% which again largest from past tax refunds so not that good. He continued to invest a little bit just to what he needed in textiles. He acquired Womback Mills and Womback Dying and Finishing Company. He bought it in April of 2075 really at the bottom of the textile depression then so he again probably bought value or he again bought a dollar for pennies but he gives us the first message that you should look for investments that provide high returns on capital. His textile investment surely wasn't a high return on capital because he maybe broke even there but his other investments made the high return on capital. On insurance and inflation the year was very bad because of high inflation which means that the costs the insurers have to pay for what they are insuring went up significantly why the premiums the past paid premiums weren't enough to cover that. So then you have an issue when you are an insurer and there are a lot of losses. So in that period the losses were big for insurance which wasn't a positive let's say. However on the insurance investments also things weren't going that well the portfolio was down 16 million. He had an unrealized loss of 16 billion million but he says that he believes that will change in the next year and even in March and 1976 the loss was still at 15 million. So Buffett was going around with a loss of 15 million on his investments through 1974, 1975 and begin 1976. However he writes our equity investments are heavily concentrated in a few companies which are selected based on favorable economic characteristics competent and honest management and a purchase price attractive when measured against the yardstick of value to a private owner. So the second message is concentration good businesses and what would you pay to own the company. The largest position in his portfolio was Washington Post with 465,150 shares at the cost of 10.6 million that he expects to hold permanently as he says in the letter. Forward 40 years and in 2014 he actually sold his holdings in Graham holding the parent of the company that later became for 1.1 billion to Jeff Bezos from Amazon. So he invested 10.6 billion plus the dividends that were 17 million in the last year so 7 million more than what he paid for and got 1.1 billion over 40 years not bad on a 10 million investment. Message free don't worry about unrealized capital losses if you know what you are owning is good which is exactly what Buffett says. With this approach stock market fluctuations are of little importance to us except as they may provide buying opportunities but business performance is of a major importance. On this score we have been delighted with progress made by practically all of the companies in which we now have significant investments. And then we have the first since present management took over he discusses a little bit of history book value $19 in 1965 that he bought for $10 that has been increased to $94 per share in 1975. So with acquisitions buybacks it is a return on 50% on equity. If you look at his investment start of $10 or even lower their return is even higher what 40% per year on the investment not on equity. The conclusion is that the focus is on diversified businesses based on insurance and banking that will produce higher returns than the American industry as a whole. 1976 earnings of $16 for an equity return on 17.3% on good insurance on recovery in insurance. Textiles continue to be a disaster he intends to hold his bonds his 120-140 million portfolio in bonds to maturity again a crucial thing to understand when you're investing in bonds if inflation doesn't really stay higher but he didn't believe that interest rates will stay at double digit rates for longer. The stock portfolio turned into gains from the previous losses and he finally discloses it. Very concentrated government employees insurance company convertible and preferred is now the largest position at 25 million that's GEICO so he started to invest in GEICO shares then we have Kaiser Industries a short-term play because he found the value and then there is again the Washington Post company that he invested and then he discusses his selection criteria so we select such investments on a long-term basis weighing the same factors as would be involved in the purchase of 100% of a business the key here to understand is you are investing in a business not in stocks one favorable long-term economic characteristics exactly what insurance banking had in the 1970s in America due to the growth of automotive etc competent and honest management purchase price attractive when measured against the yardstick of value to a private owner and an industry with which we are familiar and whose long-term business characteristics we feel competent to judge he continues that it is difficult to find such investments but that is the reason for his concentration we simply can't find 100 different securities that conform to our investment requirements however we feel quite comfortable concentrating our holdings in the much smaller number that we do identify as attractive so this is Buffett's investing criteria really clearly put and just stick to that and the key message of this video and his letters is always I'm not investing in stocks I'm investing in businesses and the business return in relation to the price I pay is what will be my long-term return stocks up and down you can take advantage as buying opportunities and that's exactly what I'm doing I have my portfolio you can check it on my stock market research platform there is a 28 money back guarantee so no questions asked you can check it you can see everything that I do not only from videos because you see just small parts there so you can check if it resonates stick if not ask your money back within 28 days however that's exactly what I do I invest in businesses and I hope for stock prices to go down so that I can buy more of the great businesses I am looking for and I am finding so that's the message investing businesses the business return is the key to your investment returns thank you for watching and I'll see you in the next video