The latest pearls of wisdom from ace investor Warren Buffett

When the world’s most successful life investors speak, I think it’s worth listening. I’m talking about self-made billionaire Warren Buffett here, who is behind it Berkshire Hathaway.

Buffett’s annual letter to shareholders is legendary, and offers some of the most memorable investment advice in decades. Letter 2022 just came out.

I have to start with his long-term return. Between Buffett taking the helm in 1965 and 2022, Berkshire Hathaway’s stock gained 3,787,464%.

At S&P 500, including dividends, returns 24,708%. The same annual return is 9.9% of the index, double Warren Buffett’s 19.8%.

Today, 9.9% per year can turn long-term investors into millionaires. But 19.8%, yes, that’s what billionaires make of it.

Buybacks

Buffett strongly defends the use of stock buybacks. It is a political problem in the US, after the introduction of a tax on buybacks. But that aside, why would it be controversial?

Some people believe that there are better uses for spare capital. But as Warren Buffett says:

The math isn’t complicated: As the number of shares goes down, your interest in many businesses goes up. Every little bit helps if the repurchase is made at a value-accretive price.

And what I think might go down as the investment quote of the year:

If you are told that all buybacks are dangerous for shareholders or the country, or especially beneficial for the CEO, you are listening to either an economic illiterate or a silver-tongued demagogue (non-exclusive character).

Great buy

The latest letter is short by past standards, and doesn’t contain much new insight. But something Buffett said really hammered home what I think is the key to long-term investing.

He talks about investing in stocks in companies that have “favorable economic characteristics long-lasting and reliable manager“. And he said that “Charlie [Munger] and I am not a stock-picker; we are business-pickers“.

Some look at shares as something to buy and sell, to try to pocket a quick profit. Warren Buffett and his fellow managers are instead looking for attractive businesses to buy and hold. The result shows clearly in 19.8% of annual shareholder earnings.

The secret

It’s easy to think that Warren Buffett has the golden touch. He never made a bad decision. And everything they buy is a profit.

But he insists this year that he has made many mistakes in his time. He thought he was “satisfactory results have been the product of about a dozen really good decisions – that will be about one every five years“.

Encouragement

I find that amazing, and also encouraging. As long as we can avoid wipeouts, we really only need to find a relatively small number of really big companies to succeed.

He added “yes, it helps to start early and live into the 90s as well“.

There isn’t much I can offer in terms of replicating his longevity. And if we haven’t started early, I think the answer is definitely starting now. And, as always, invest for the long term.