Warren Buffett posted his farewell letter to shareholders on 10 November, ahead of his retirement as CEO of Berkshire Hathaway (NYSE: BRK.B) at the end of the year.
Buffett took control of the company in 1965. Between then and 2024, the S&P 500 grew by 39.054% with dividends included. But Berkshire Hathaway’s total gain hit 5,502,284%. Yes, more than five million percent.
He’s leaving the company in great shape for successor Greg Abel. Berkshire’s latest quarterly report revealed a cash pile of $380bn. Buffett isn’t impatient when it comes to finding something to buy.
I’ve picked three key lessons from the letter, spurred by three choice quotes.
Expect bad years
Our stock price will move capriciously, occasionally falling 50% or so as has happened three times in 60 years under present management.
It’s scary when a stock you hold suffers a big dip, isn’t it? I’m not as old as Warren Buffett and I didn’t start as early. But I’ve taken a few painful falls. Were you holding any bank shares when the financial crisis hit in 2008? I was, but thankfully only one.
Share price falls will happen, and we have to expect them and deal with them. There are two main ways. One is through diversification to spread the risk. And the other is through time.
Berkshire stock fell 32% in that bank crunch year. But it regained the losses and more in just four years.
Seek top managers
I would like to keep a significant amount of ‘A’ shares until Berkshire shareholders develop the comfort with Greg that Charlie [Munger] and I long enjoyed.
Buffett identified Greg Abel as Berkshire’s next CEO some time ago, and says Abel understands many of the company’s businesses better than he himself does. That includes knowing the insurance business better than many insurance executives.
Still, he’s not expecting a rocky handover period, telling us: “That level of confidence shouldn’t take long.” He added that Berkshire should only need five or six CEOs over the next century, provided it avoids “those whose goal is to retire at 65, to become look-at-me rich or to initiate a dynasty.“
You’ll make mistakes
Don’t beat yourself up over past mistakes – learn at least a little from them and move on. It is never too late to improve. Get the right heroes and copy them.
Buffett speaks of Alfred Nobel, whose own obituary was allegedly published accidentally when he was still alive: “He was horrified at what he read and realized he should change his behavior.”
Every mistake we make is a mistake we won’t make again, right?
And one from me
Speaking of learning from mistakes and finding the right heroes, I want to offer one recommendation of my own. Over the years, I’ve read every one of Buffett’s famous annual letters to Berkshire Hathaway shareholders.
They’re available for free at the company web site, and I urge everyone to read them too. Just one a day, and you should get there by the time the great man retires.
I can’t guarantee it’ll make you a better investor, but my confidence is high.
