Every year, around February, Warren Buffett releases his highly-anticipated annual shareholder letter to Berkshire Hathaway investors.
It’s a rare insight into the mind of perhaps the greatest investor of our time and contains nuggets of gold that all investors, from novices to experts, can incorporate into their own investment philosophy.
However, in January, Buffett will step down as CEO of Berkshire Hathaway — just seven months away from his 96th birthday.
While Buffett will no longer write the annual shareholder letter, he confirmed he will still be writing to investors every year, but through his Thanksgiving letter instead.
On Monday, Buffett released his final Thanksgiving shareholder letter as CEO.
Here are three lessons investors can take from the ’Oracle of Omaha’ and his latest words of wisdom.
3 investing lessons from Buffett’s latest shareholder letter
1. Don’t panic when markets fall
“Our stock price will move capriciously, occasionally falling 50% or so as has happened three times in 60 years under present management. Don’t despair; America will come back and so will Berkshire shares.”
This is perhaps the most important lesson investors can take from this year’s annual shareholder letter.
It’s a great way of capturing Buffett’s long-term investment philosophy and serves as a reminder of the not-so-secret ingredient to investing success that investors can often forget — invest in a diversified portfolio and let compounding do the work over the long term.
For many Buffett admirers, this isn’t anything new or revolutionary — it’s a message he’s been preaching for years.
“The stock market serves as a relocation center at which money is moved from the active to the patient.” — Warren Buffett, 1991
This is often easier said than done, though,especially in times of uncertainty when we see big market falls of 10, 20, 30% or more. Being able to block out the noise and stay focused on your long-term financial plan, however, is usually what separates good and bad investors.
In fact, Buffett goes one step further. He thinks market falls can often be great opportunities to invest even more.
“Be fearful when others are greedy, and be greedy when others are fearful”
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2. Safe and sensible over flashy and brash
Buffett started this year’s annual shareholder letter by reminiscing on his upbringing.
He spoke about his fondness for Omaha and how some of the closest friends and business partners have actually also come from his hometown, even if they only happened to meet later in life.
Perhaps the most important reference for Berkshire Hathaway investors was Greg Abel — the man chosen to step into Buffett’s very big shoes.
Buffett described him as a great manager, a tireless worker, and an honest communicator, while stressing that there is no one else he would put in this position above Abel.
While praising Abel, he stated that Berkshire has less chance of a devastating disaster than any business he knows, but also how important it is to have a shareholder-conscious management and board.
Buffett then went on to warn investors of the dangers of flashy bosses competing for who can earn the most; this is where the lesson sits for investors.
“Over time, our managers should grow quite wealthy – they have important responsibilities – but do not have the desire for dynastic or look-at-me wealth.”
In today’s world, it’s easy to get caught up in chasing flashy ‘hot stocks’ out of fear of missing out on the next ‘big thing’. But in reality very few consistently pick the winners and actually beat the market.
“For most people, the best thing to do is to own the S&P 500 index”
Buffett has argued plenty of times in the past that owning the index is usually the best way for retail investors to grow wealth, especially when you have time on your side.
After all, his favourite holding period is forever.
3. Don’t be fooled by randomness
A constant message through Buffett’s letter was about ‘Lady Luck’.
Buffett repeatedly credited luck for his time (and place) of birth, his opportunities and his health.
He goes on to mention how many global leaders and the rich have had their fair share of luck, and often prefer not to acknowledge it.
But he acknowledges that even luck has its limits eventually.
And when luck’s not on your side and you make mistakes, don’t beat yourself up over them — learn at least a little from them and move on.
The important message for investors here is that more often than not, investing is about behaviour, not brilliance.
Try to avoid listening to stock market charlatans, no matter how much they claim to know what’s coming next for markets, and choose your investment role models wisely — Warren Buffett is a great place to start.
And remember, building long-term wealth can be simple when you build and stick to good investing habits that can benefit you well into the future.
Important information
Capital at risk. The value of your investments can go down as well as up, and you may get back less than you put in. Past performance also isn’t a guide to future returns.
Tax treatment depends on individual circumstances and is subject to change. ETF costs also apply.
This content is for information only and is not financial advice. If in doubt you may wish to consult a professional adviser for guidance.