Buffett's latest thoughts on business, investing and Berkshire

Whenever Warren Buffett speaks, or writes, I pay attention.

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Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett

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Whenever Warren Buffett speaks, or writes, I pay attention.

Both because he's been astoundingly successful and (not coincidentally) he's almost always right.

He's made a very large fortune, by doing the right things and the right time. And, frankly, the former is far, far more important than the latter, because the outcomes compound for longer, and they're far more reliable.

(Trying to guess, on timing, is a mug's game. Take the opportunity if it's presented to you, but don't try to speculate, in advance, on the right times to buy and sell.)

Buffett released his eagerly-awaited letter to shareholders of his company, Berkshire Hathaway (I'm one such shareholder) over the weekend. And, as is often the case, there's plenty to learn from.

This year's letter started a little differently, however. It was a tribute to Buffett's long-time business partner, Charlie Munger, who died late last year.

In Buffett's typically humble style, he credits Charlie with much of Berkshire's success. And, in doing so, highlights just what he believes delivered that success:

"Warren … now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale." 

And, in an act of particularly great humility, given the almost-60 years he's run Berkshire, Buffett wrote:

"In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect."

Buffett also reminded us of how he does (and we should) invest:

"Our goal at Berkshire is simple: We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring. Within capitalism, some businesses will flourish for a very long time while others will prove to be sinkholes. It's harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen."

(It's something I've written over and over again: outcomes are never knowable. Our best chance is to invest probabilistically, aiming to be right more than wrong, and have those successes gain more than our failures lose.)

And a warning:

"Though the stock market is massively larger than it was in our early years, today's active participants are neither more emotionally stable nor better taught than when I was in school. For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants."

He also reminds us of both the responsibility of company managers, and that we should be careful when reading their press releases:

"We cherish their presence and believe [shareholders] are entitled to hear every year both the good and bad news, delivered directly from their CEO and not from an investor-relations officer or communications consultant forever serving up optimism and syrupy mush."

Using two businesses Berkshire has long held in its portfolio, Buffett shares this lesson:

"The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable."

The last key takeaway from the letter? A table Buffett updates every year, showing the per share price of Berkshire, against the S&P 500 Index (SP: .INX).

In 2023, Berkshire trailed the S&P, gaining a very strong 15.8% as the index rose an astonishing 26.3%

But over the total time Buffett has run Berkshire?

The S&P's average annual gain was 10.2%, for an extraordinary compound gain of 31,223%.

And Berkshire? A not-quite-double of 19.8% per annum. But because of compounding, the total result since 1965 isn't just double. Or even 10 times as large.

Berkshire, under Buffett, has grown its shareholders' wealth by an extraordinary 4,384,748%.

And no, that is not a typo.

In short? When investing, it can be very useful to ask yourself: What would Warren Buffett do? I think, faithfully applied, you'll be very happy with the results of such an approach.

Do yourself a favour and read the whole letter!

(For those who are interested, let me finish with a little rampant speculation: The tone of the letter was heavily of the 'we'll do okay, but massive gains and regular purchases of large businesses are probably behind us'. Berkshire is buying back its own shares when prices are cheap, but I don't think it'll be particularly long before it pays its first dividend since 1965 to deploy some of the cash that continues to pile up on the company's balance sheet. I could, of course, be spectacularly wrong!)

Fool on!

Motley Fool contributor Scott Phillips has positions in Berkshire Hathaway. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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