Well, it’s that time of year – the annual Buffett letter is out. Love him or hate him, these letters are always must reads as they’re filled with awkward sex jokes and investment knowledge that you can pass on to your kids. The investment knowledge, that is, not the sex jokes. Here are some key takeaways from this year’s letter:

Stocks are really expensive 

He writes:

“In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That 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.

Why the purchasing frenzy? In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.”

It took him two pages before he made an awkward sex joke. He’s getting impatient in his old age. But one thing he’s definitely patient about is buying stocks at a reasonable price. He apparently doesn’t love the market at these valuations….

Don’t use leverage to buy stocks

Here’s a timely comment on using leverage given the recent fiascos with leveraged ETFs and volatility ETFs:

“This table (referencing four 35%+ declines in Berkshire stock) offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”