For those interested in a great read, check out the latest edition of Warren Buffett’s annual letter to Berkshire Hathaway. Buffett’s annual letter is required reading for investors, business owners, or anyone who just wants to gain unique insight into how the economy and investment markets function.
Here are the main lessons I took away from this year’s edition:
Don’t Forget Your Focus
Warren Buffett opens his letter by highlighting his main job at Berkshire:
Charlie Munger, my long-time partner, and I have the job of managing the savings of a great number of individuals. We are grateful for their enduring trust, a relationship that often spans much of their adult lifetime. It is those dedicated savers that are forefront in my mind as I write this letter.
At his core, Buffett is focused on helping the individuals or regular people that invest in Berkshire. This is what investing is (or rather should be) all about. Unfortunately, the financial industry often mucks things up by introducing shady or unethical business practices, which ultimately end up harming consumers.
However, when it comes to investing, don’t forget why you’re doing it. To help your future self, your loved ones, or your community.
Invest For the Long Term (and stay optimistic!)
I have been investing for 80 years – more than one-third of our country’s lifetime. Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.
Let me repeat… Warren Buffett has been investing for 80 years! Here’s a good chart of his net worth by age:
Over 99% of his net worth was accrued after his 50th birthday. When it comes to investing, the power of time is BY FAR the most important factor.
It’s also important to stay optimistic. For those of us lucky enough to live in the United States, we have a bright future in front of us, no matter how bleak things may seem in the media, political arena, or elsewhere. And at the end of the day, every investor is an optimist, whether they know it or not.
Don’t Sell at a Panic-type Valuation
Buffett also had an interesting thought about the difference between public and private markets:
One advantage of [public markets] is that – episodically – it becomes easy to buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often trade at truly foolish prices, both high and low.
…
Controlled businesses are a different breed. They sometimes command ridiculously higher prices than justified but are almost never available at bargain valuations. Unless under duress, the owner of a controlled business gives no thought to selling at a panic-type valuation.
Notice that last part… owners of private businesses never sell at a “panic-type valuation”. This is a key component of investing. When markets get tough, we should try to emulate those private business owners and fight the urge to bail out and go to cash.
Nothing Beats Having a Great Partner
Buffett also extols the benefits of having a great partner. Buffett’s investment partner, Charlie Munger, has been pushing him to higher heights for a long time now.
Having a great partner can benefit all of us. Whether it’s a business partner, a spouse, a friend, or trusted financial advisor, having someone to bounce ideas off of and discuss difficult decisions can offer tremendous value.
Don’t Be Afraid to Sell
As always, Buffett ended his letter by reminding everyone to buy candy from Berkshire’s subsidiary company See’s Candies at the upcoming shareholder meeting in Omaha this May.
While some might think Buffett trying to sell See’s Candies in his shareholder letter is tacky, I think it offers us all a great lesson. Namely, don’t be afraid to sell!
Much of our success in life comes down to selling. At one point or another, all of us need to sell…
- ourselves to a prospective employer or partner.
- our skills or accomplishments to our boss.
- a product or service to a client or customer.
So don’t be afraid to sell. If it works for Warren Buffett, it just might work for us.
