 Good day, fellow investors. I usually don't like February, but at the end of each month, at the end of each February, the winter suddenly gets very, very warm because Warren Buffett publishes his letter to shareholders. And this year's letter, I think the first page is filled with so much investing wisdom that it is an incredible gift he gives to us, especially for long-term investors. So I'm going to go through five things that I think are crucial if you want to be a long-term investor and let the businesses give you the return. So let's dig into Warren Buffett's letter to shareholders year 2017. The first thing I want to touch on is accounting. That will force him to report capital gains from the stock holdings he has Berkshire has in his bottom line. This means that the bottom line net income from Berkshire from now on will go up and down a lot. So with the new rules, you will not be able to know anything about Berkshire if you look at net income and if you look at price to earnings ratio. Further, also any holding company that has stocks or similar activities or is doing similar activities as Berkshire will be impossible to value through price to earnings ratios. Therefore, stock screeners and all those tools that seem helpful at first will make you miss a lot of things. For example, if Berkshire or if the stock market or Berkshire's holdings drop in value the next two years, 10-15% a year, Berkshire will probably report a loss. 290 billion portfolio, 15% drop is 25 billion. That's more than their operating earnings. So they will report a loss. So we could see Berkshire with a negative price to earnings ratio next year or in the next two years. This would make it very difficult to value such a company. So we have to look really beyond reported earnings because of the new accounting rules. Of course something to remember there is a difference between tax accounting and reported accounting because tax accounting they will not pay taxes on those reported earnings only on the realized gains. So if they don't sell those stocks they will not pay taxes on it until the gains are realized. So my key message here is that the key to analyzing a business is knowing accounting. Accounting is the language of business so it's key to know as much accounting as you can. Perhaps we should start an accounting for investors course. Not now but in the future I'm sure I will make something like that. Further I also want to discuss reported and adjusted earnings. Reported earnings are inclusive all the non-recurring items that the management says they are not recurring but usually firing people, impairments those are recurring because that is what the management is capable of and that's it. So always check the real earnings and not the adjusted earnings reported from the management. You are a little bit more conservative but you avoid a lot of trouble down the road. Buffett never fails to mention his buying criteria which are all well known. However it's always good to remind ourselves of them. In our search for new standalone businesses the key qualities we seek are durable competitive strength, able and high-grade management, good returns on the net tangible assets, tangible assets required to operate the business, opportunities for internal growth at attractive returns, return on investment capital that we discussed and finally a sensible purchase price. What's interesting is that Warren Buffett didn't manage to find investments in 2017 that fit those criteria. Thus the message to us is the market is overvalued and it's extremely difficult to invest in this market. The last requirement proved a barrier to virtually all deals we reviewed in 2017 as prices for decent but far from spectacular businesses hit an all-time high. Indeed price seemed almost irrelevant to an army of optimistic purchasers. Do you see the world through rosy glasses and do you see what has been going on in the last few years to repeat itself in the next eight years? Or do you see as Buffett sees and as Buffett is sending us a message, do you see the world through a cyclical perspective? The economy, the markets, debt cycle, nature, everything works in cycles. Even we humans work in cycles so it's important to have such a cyclical perspective on whatever is going on. You will perhaps lose some gains in the upward of the cycle but we will save yourself from a lot of losses in the downward of the cycle. However if you are very optimistic don't worry most corporate managers are also very very optimistic and on the mergers end of the acquisitions Warren Buffett says that why is there a purchasing frenzy because the CEO job is a can-do type alpha male who just wants to have a bigger office a lot more people under himself and a bigger plane of course. The more people work for you the bigger your salary is. Further if they ask investment bankers then they are smelling huge fees and they will say yes go for that acquisition go for that acquisition. I bet you JP Morgan on Goldman Sachs will never back down from an acquisition they will always find a spreadsheet that fits the required appetite for an acquisition. What happens when the cycle inverts, debt costs increase, earnings decrease, debt covenants are breached and a lot of impairments are done and then you see those 80-90 percent stock drops. So now if you want to short something look at the most aggressive purchasers that pay an overly optimistic price for another stock that will turn negative as the cycle reverts and there you have yourself a great short opportunity. Further Buffett discusses of course that he doesn't like that and what's very important is that if you use that to make an acquisition you boost per share earnings because the debt is very cheap and if the return on investment let's say the price to earnings ratio you acquire something is 30 that means a 3.3 percent return on investment and the yield you have to pay on debt is 2.5 percent then it pays to make an acquisition. Buffett says they don't like those odds. So what to do in an investment environment where everything is expensive the odds of doing good investments are not that good well there is something that is a key component of a long-term investor doing nothing most of the time as an investor you should do absolutely nothing until you find an investment that meets your criteria and only then you invest if you stick to doing that through the 50 years you will be investing you will be a great great investor with excellent investment returns that's the key so doing nothing or even worse than doing nothing something even more boring you constantly check investments if they fit your criteria if not you say no no no so in an overheated market like we are now you're constantly saying no no no however when you have money because usually people now have money you are bound to lose those those criterias which will lead to losses in the long term. So Buffett has now 116 billion of cash so he's patient and prudent something we should all be if we are long-term investors despite our recent drought of acquisitions Charlie and I believe that from time to time Berkshire will have opportunities to make very large purchases what does that mean from time to time it means that there will be opportunities which signals that there will be a crash there will be a reversal in the cycle and they will buy what they want to buy on the cheap that's why they have the 116 billion invested in treasuries this also means that perhaps Warren Buffett has an all-weather portfolio strategy too or at least a little bit conclusion Warren Buffett five rules if you're a long-term investor you stick to those you will do great in your life if you're a trader as I think I could be both a long-term investor and a trader using the long-term principles of Buffett taking advantage of those two three-year cycles let's say a long-term trader then so that's the way I'm going I want to be a long-term investor as Buffett is but also see what I can gain with trading where I can lower the risk of holding those investments for the long term and increase my returns something I have been thinking of so if you want to learn more I'm happy to share with you what I do every day so subscribe click that notification bell comment below ask questions we are here to discuss and I'll see you in the next video