If you haven't read Warren Buffett's annual letter to shareholders, released by Berkshire Hathaway's chairman on Saturday, you should do so.
Please also read the back issues. It contains source material for many of the pearls of investing wisdom you've seen floating next to Buffett's mug shot on the internet for years. After all, who wouldn't want to learn all they can from one of the greatest investors of all time?
In the meantime, here are some key lessons for investors from this year's letter.
In his 2024 letter, Buffett envisions an audience similar to his sister Bertie, a shrewd, financially savvy long-term investor in Berkshire. Buffett wrote that although she has some knowledge of how accounting works, she will not pass the CPA exam.
The great asset to Bertie and investors like her is that “she's smart, very smart, and instinctively knows that experts should always be ignored,” Buffett says. “After all, if she could reliably predict tomorrow's winners, could she freely share her valuable insights to increase competitive purchasing? It’s like giving a map to your neighbor.”
This is an astute observation, and one worth remembering the next time a hot stock, cryptocurrency, or NFT pitch appears on your timeline. Or when someone on YouTube says they can make you rich with day trading strategies. They are often trying to make money from you, not for you.
Next time you take a pitch like that, be like Barty. “Bertie understands the power of incentives, human frailty, and the 'lessons' we can recognize when observing human behavior, for better or for worse,” Buffett wrote. “She knows who's 'selling' and who she can trust. In short, she's nobody's fool.”
Buffett often recommends that non-professional investors gravitate toward index funds, which seek to replicate the performance of the U.S. stock market.
The benefits are twofold. By diversifying your portfolio across a wide range of stocks, you greatly reduce the chance that a big bet on a particular investment will go wrong and underperform.
Moreover, if the market stays true to its historical upward trajectory, you should be able to reap significant gains over the long term.
“Since March 11, 1942 (the day I first bought stocks), I can't remember a time when I didn't have a significant portion of my net worth invested in U.S. stocks. And so far, so good,” Buffett said. said. is written.
When he decided to invest, the Dow Jones Industrial Average was below 100 points. Buffett said it was down about $5 on the first day. However, the deficit did not last long.
“Things quickly improved, and the index is now hovering around 38,000,” Buffett wrote. “America has been a great country for investors. All investors had to do was sit quietly and listen to no one.”
The history of American markets has included dramatic declines, a phenomenon that has only been amplified in recent years by the speed at which information travels on the Internet.
Buffett says this situation isn't going to change anytime soon. “Such momentary panics don't happen often, but they will happen at some point.”
In a section titled “Our Not-So-Secret Weapon,'' Buffett notes that these economic downturns have historically bought Berkshire an opportunity to buy blue-chip stocks at discounts.
As investors, Buffett and his colleagues were able to respond to a panicked market with “large sums of money and solid performance,” he wrote. Perhaps more importantly, they don't allow short-term noise in the market to lure them into selling assets at low prices.
“One of Berkshire's investing rules is and always will be: never risk permanent loss of capital,” Buffett wrote. “Thanks to America's tailwinds and the power of compound interest, the arena in which we operate has been, and will continue to be, rewarding if we can make some good decisions and avoid some serious mistakes in our lifetimes. It will continue to be what it is.”
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