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Warren Buffett‘s annual letter to Berkshire Hathaway (NYSE:BRK.B) shareholders has turn into the stuff of legend. And I believe we will study extra key classes from him than from every other particular person.
Who can ever neglect “It’s much better to purchase a beautiful firm at a good worth than a good firm at a beautiful worth“. That was from the 1989 letter. And it bears on one of many themes from the most recent for 2024, a yr that noticed file 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 good man say about it?
He stated: “Regardless of what some commentators presently view as a rare money place at Berkshire, the good majority of your cash stays in equities. That choice 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 do not forget that factor about fantastic firms at honest costs? It appears easy to me — when you’re not seeing them now, don’t purchase now.
There’s nothing incorrect with holding money when shares look too excessive, and protecting it till there are higher alternatives. One factor I’m positive 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 instances in my letters to you. Many different enormous firms 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 comfortable speak and footage“.
He was variety 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 referred to as ‘thumb-sucking.’ Issues, he would inform me, can’t be wished away. They require motion, nonetheless uncomfortable that could be.”
Reinvest, reinvest
“In a really minor manner, Berkshire shareholders have participated within the American miracle by foregoing dividends, thereby electing to reinvest quite than eat. Initially, this reinvestment was tiny, nearly 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 basically want any futher rationalization? If we hold ploughing our dividends into new shares for lengthy sufficient, the annual income we earn from the reinvested money can come to exceed our returns from the preliminary funding itself.
And at last, 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 likely 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.
