Picture supply: Getty Photos
Warren Buffett‘s annual letter to Berkshire Hathaway (NYSE:BRK.B) shareholders has develop into the stuff of legend. And I feel we are able to be taught extra key classes from him than from every other particular person.
Who can ever overlook “It’s much better to purchase an exquisite firm at a good value than a good firm at an exquisite value“. That was from the 1989 letter. And it bears on one of many themes from the newest for 2024, a yr that noticed document working earnings of $47.4bn.
The market worth of Berkshire Hathaway soared 5,502,284% from 1964 to 2024, whereas the S&P 500 gained 39,054%.
There’s no rush
Berkshire Hathway has amassed an eye-watering sum of $334bn in money. Topped up from gross sales of Apple and Financial institution of America, it’s been hitting the monetary headlines all yr. So what did the nice man say about it?
He mentioned: “Regardless of what some commentators at present view as a rare money place at Berkshire, the nice majority of your cash stays in equities. That desire received’t change.“
So no, he hasn’t modified his thoughts that the inventory market is the absolute best long-term funding there may be. However keep in mind that factor about great corporations at truthful costs? It appears easy to me — in the event you’re not seeing them now, don’t purchase now.
There’s nothing fallacious with holding money when shares look too excessive, and retaining it till there are higher alternatives. One factor I’m certain all of us know from expertise is that we’ll see inventory market falls sooner or later.
“Errors – sure, we make them at Berkshire”
Buffett informed us: “Through the 2019-23 interval, I’ve used the phrases ‘mistake’ or ‘error’ 16 occasions in my letters to you. Many different enormous corporations have by no means used both phrase over that span.“
He identified that Amazon “made some brutally candid observations” in 2021. However apart from that, company suggestions to shareholders “has typically been completely happy speak and photos“.
He was type sufficient to spell out the important thing lesson right here for traders: “The cardinal sin is delaying the correction of errors or what Charlie Munger known as ‘thumb-sucking.’ Issues, he would inform me, can’t be wished away. They require motion, nevertheless uncomfortable which may be.”
Reinvest, reinvest
“In a really minor method, Berkshire shareholders have participated within the American miracle by foregoing dividends, thereby electing to reinvest fairly than devour. Initially, this reinvestment was tiny, virtually meaningless, however over time, it mushroomed, reflecting the combination of a sustained tradition of financial savings, mixed with the magic of long-term compounding.“
Does the lesson from that actually want any futher rationalization? If we hold ploughing our dividends into new shares for lengthy sufficient, the annual earnings we earn from the reinvested money can come to exceed our returns from the preliminary funding itself.
And eventually, sadly, I’m reminded how good issues come to an finish: “At 94, it received’t be lengthy earlier than Greg Abel replaces me as CEO and will probably be writing the annual letters“. But when Warren Buffett reckons Abel is the precise man for the job, I’ll nonetheless be studying these letters.
